When these conditions are met, we will most likely see a new rally on BTC
Blockware Intelligence analyst Will Clemente said show three on-chain metrics that can be used to determine a reversal in the market and a starting bullrun.
Rising open interest
One of the first indicators that can help investors determine the change of sentiment on the market is open interest in the cryptocurrency derivatives market. The analyst believes that a reversal will be signaled by spot bidding into disbelief from derivatives.
Generally, rising open interest suggests that risk demand is returning to the market and traders are ready to support their positions with leverage, creating more momentum for the trending asset.
Negative funding regime
The negative funding rate is a condition in which short positions are paid for longs. It can show that shorts need additional leverage, which is the mechanism of balancing the derivatives’ price with the spot asset. At some point, longs will also demand more leverage, which causes the funding rate to turn positive, and they will be the ones paying fees to sellers.
Historically, a low or negative funding rate could be an indicator of future purchasing power, as Bitcoin and other cryptocurrencies only rallied when bears paid bulls a fee.
“Backwardation”
“Backwardation is a relatively rare market condition when the price of the spot asset becomes higher than prices on the futures market. Usually, backwardation appears whenever a spot asset faces an unusually high demand.
Previously, such a condition was reached on a few exchanges like FTX, which could be a sign of an upcoming wave of rising demand on the spot asset. For now, trading volume on BTC remains extremely low as the cryptocurrency changes hands at $21,650.
