Santiment: Leveraging lending and borrowing metrics to decode crypto market cycles

Santiment analytics platform revealed that DeFi lending and borrowing metrics can help investors better analyze crypto market cycles. The firm also noted that interest rates, debt levels, and liquidation events can reveal when markets are overheated or bottoming out.

The analytic platform showed that when borrowing rates spike above 10% to 15%, it often signals a market top driven by excessive demand for leverage. Low and flat rates over several weeks can indicate a market bottom, where speculation has died down, and re-entry points may appear.

DeFi lending and borrowing metrics help investors analyze crypto market cycles

Santiment analytics acknowledged that lending and borrowing data can provide traders with unique insights into market conditions in lieu of focusing on price action or social sentiment. The firm argued that the metrics can help investors identify market extremes, both the overheated periods where caution is needed and the cooling periods that might signal buying opportunities.

The analytics platform highlighted the concept of the “Value of Money,” where interest rates on lending platforms like Aave and Compound reflect supply and demand for capital in crypto markets. The firm stated that interest rates rise when borrowing demand increases. Santiment also argued that extreme interest rate spikes often signaled market tops, while flat or low rates may indicate market bottoms.

The analytics platform believes that the framework reflects the behaviour of market participants, where the determination of the value of money is a direct expression of general market sentiment. The financial data firm noted that key indicators included stablecoin supply rate, borrowing rate, and supply/borrow ratio.

Santiment noted that interest rates above 10-15% indicated overheated conditions and market tops, where borrowers are willing to pay high costs to gain leverage. The firm also suggested that falling interest rates signaled decreasing demand for leverage and market cooling. The analytics platform stated that flat rates between 3-4% for several weeks suggested reduced speculation and potential bottoming conditions.

The firm also highlighted that the most reliable signal was when rates surged quickly above baseline levels. Sentiment added that the bottoming process won’t be complete until rates remain flat for 2-4 weeks.

Santiment says liquidation metric can help investors analyze markets

🤑 The crypto market moves in cycles, and one of the more overlooked methods to analyze these cycles is through DeFi lending and borrowing data. Instead of just watching price action or social sentiment, this article highlights how interest rates, debt levels, and liquidation… pic.twitter.com/4dZ8ZTriOh

— Santiment (@santimentfeed) March 26, 2025

The analytics company revealed its “Blood on the Streets” liquidation metric that can determine potential crypto market cycles. The firm highlighted that liquidation occurred when borrowers’ collateral value fell below the required thresholds. Santiment also believes that the forced collateral sales create market pressure and often signal capitulation events.

The financial market data platform said that large liquidation spikes combined with decreasing total debt can mark potential market bottoms. Sentiment highlighted that key indicators for this framework included total liquidations, which is the dollar value of positions forcibly closed. Another indicator is total debt changes, which is the fluctuation in the total borrowed amount. The firm also stated that repayments, the voluntary debt reduction by borrowers, could indicate potential market bottoms and tops.

Santiment noted that most liquidations came from long leverages, which occurred when market participants borrow stablecoins against crypto assets to purchase more crypto. Another source of liquidation was short positions, where investors borrowed crypto against stablecoins to sell and bet on price decreases. The firm also argued that long liquidations were more common and typically occurred during market drops, while short liquidations happen during sharp upward moves.

The analytics platform maintained that large liquidation events caused by significant liquidation spikes often marked local bottoms. Concurrent debt reduction, when liquidations coincide with total debt decreases, strengthens the signal. The firm also highlighted that price levels where major liquidations occur often turn to support in ranging markets. Santiment argued that spotting the combination of large liquidations and significant debt reduction can provide optimal trade entry points.

Santiment also highlighted that total open interest metrics could enhance market participants’ analysis. The metric measures the total value of outstanding futures contracts, and high open interest during price increases often signals excessive leverage and impending corrections.

The firm also mentioned that funding rates that show the premium between perpetual futures and spot prices was another metric to enhance market analysis. Positive rates where longs pay shorts signaled bullish sentiment, while negative rates, where shorts pay longs, often signaled bearish sentiment. The analytics firm also argued that negative funding rates often preceded bounces as short liquidations can fuel upward momentum.

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