Crypto market seems to be little overheated, some industry leaders say that amidst the ongoing parabolic rally the crypto market crash could happen before the next surge.
Historically, there are key indicators that can help predict an impending crypto market crash. Some of these warning signs are already visible, such as the meme coin frenzy, sky-high crypto futures funding rates, and extreme greed among investors.
Is Crypto Market Going to Crash? 3 Signals Point to a Correction
Market crash can be pretty common in the crypto space, even during bull runs. Keeping an eye on these signals can help you anticipate potential corrections and manage your risk effectively.
Historically speaking, a couple of telling indicators precede the accident. Three of the most obvious have already appeared, such as the meme coin frenzy, sky-high crypto futures funding rates, and highly greedy investors.
Crypto investor sentiment from the alternative blew out to 84, or “extreme greed,”on the Crypto Fear & Greed Index.me on November 13, one day after Bitcoin surpassed its $93,300 record high. The last time it posted so high greed was in April. Bitcoin experienced an 18% correction over three weeks, dropping from $69,135 to $56,500 by May 1. This suggests another correction could happen soon, though most analysts remain bullish on Bitcoin’s 2025 outlook.
Bitcoin rose to almost $90,000 on November 12, after its best week since the US banking crisis earlier this year. In just one week, the cryptocurrency has added more than US$413 billion to its market capitalization.
According to Kris Marszalek, co-founder and chief executive of Crypto.com, the current leveraged ratios—or the amount of borrowed funds for trading positions—are reaching unsustainable levels.
In a post on X today, November 12, Marszalek cautioned that leverage needs to be cleaned up before attack on $100k. He also urged investors to manage their risk carefully.
Leverage needs to be cleaned up before attack on $100k. Please manage your risk carefully.
— Kris | Crypto.com (@kris) November 12, 2024
CryptoQuant data showed that Bitcoin’s estimated leverage ratio across all cryptocurrency exchanges reached 0.215 on November 13, but previous day was 0.217, a high last seen in October 2023.
How To Spot The Crypto Crash Before It Happens?
Meanwhile, spates of warning shots suggest that cryptocurrencies are a risk. One such warning flag signals: meme coin madness. Coins like Pepe had wild rallies-in this case, 700% before crashing. Now, some analysts predict Pepe could soar over 1500%. Meme coins are projects that lack utility and only have speculated hype, hence unreliable to assure market stability.
The reason for caution includes sky-high futures funding rates. Perpetual futures let traders use leverage, but rising funding rates signal unsustainable speculation. Recent extreme rates on a heatmap reveal risks of mass sell-offs if prices drop.
The RSI heat map blinks red with a warning. Bitcoin and other assets’ RSI indicates increased buying pressure, but when the RSI level goes beyond 70, it only means that the market has gone overbought, and it will eventually result in a sell-off. At the time of writing it stood around 60.
Greed is another cause for concern: the Crypto Fear and Greed Index recently hit a reading of 84, describing “extreme greed” among investors. Historically, such readings have been followed by significant market corrections, though the past may not be a prologue.
All this uncertainty is further compounded by wild volatility. High volatility often signals a market preparing for a big move but also risks rapid corrections. The Bollinger Band Width Percentile Indicator shows increased volatility, suggesting the market is ready for a sharp drop.For now, realized volatility stands around 50%.
Even though he’s anti-crypto, it might be wise to heed old-school investor Warren Buffett’s advice: “Be fearful when others are greedy, and be greedy when others are fearful.”
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