The analytics platform Santiment revealed how DeFi lending and borrowing metrics can assist investors in better analyzing cryptocurrency market cycles by examining interest rates, debt levels, and liquidation events.
DeFi Metrics for Market Analysis
The platform notes that lending and borrowing data can provide traders with unique insights into market conditions in addition to price actions or social sentiments. They can help investors identify market extremes, whether overheated periods or cooling periods indicating buying opportunities. Santiment highlights the concept of 'Value of Money,' where interest rates on platforms like Aave and Compound reflect the demand and supply for capital in crypto markets. Key indicators include stablecoin supply rate, borrowing rate, and supply/borrow ratio.
Liquidations and Market Impact
The analytics company introduced the 'Blood on the Streets' liquidation metric, which can determine potential crypto market cycles. Liquidation occurs when the borrower's collateral value falls below required thresholds. Large liquidation spikes coupled with decreasing total debt can indicate potential market bottoms. Open interest volume and total debt changes are also significant indicators. Santiment argues that significant liquidation events often mark local bottom levels of the market.
Additional Analysis Tools
Santiment stresses the importance of total open interest metrics, measuring the aggregate value of outstanding futures contracts. High open interest often signals excessive leverage. Funding rate metrics showing the premium between perpetual futures and spot prices also enhance market analysis. Positive rates indicate bullish sentiment, while negative rates indicate bearish sentiment. Debt repayments and total debt reduction can signal potential market tops or bottoms.
Santiment's platform suggests utilizing DeFi lending and borrowing data for a deeper understanding of cryptocurrency market dynamics. Metrics such as interest rates and liquidations enable investors to make informed decisions.
