Predictive Strength
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Predictive Strength
Measures the average borrowing rates across leading exchanges.
Borrow rates reflect real-time competition for margin liquidity. When traders aggressively borrow stablecoins (e.g., USDT) to long crypto assets, rates spike – signaling overcrowded bullish positions. Conversely, elevated BTC borrowing (often for shorting) depresses stablecoin rates, flagging bearish sentiment. These imbalances often reverse as overleveraged positions trigger liquidations, creating mean-reversion opportunities.
Margin markets operate on reflexivity: higher borrow rates → increased cost of carry → tighter liquidation buffers. Platforms like Binance auto-liquidate positions when collateral ratios fall below 1.1x. Sustained high rates (e.g., >30% APR) indicate systemic leverage vulnerable to flash crashes. Historical data shows 80%+ of +20% BTC rallies preceded by sub-15% stablecoin borrow rates.
The data for margin borrow rates is sourced through exchange APIs, we normalize metrics against historical averages to create a comparative index.
To understand a predictive factors predictive power, we create a simple long/short strategy and simulate its past performance (with daily rebalancing):
The strategy is rebalanced daily, on a continuous basis. There are 0.5% transaction costs applied on each position adjustment.
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