Altcoin funding rates hit 9-month high – altseason or red flag?
A select group of altcoins have seen impressive gains of over 250% in the past 30 days, including Hedera (HBAR), Stellar (XLM), XRP, Algorand (ALGO), and Cardano (ADA). This rapid development has caused traders to question the sustainability of the rally and look for indicators that can be adjusted.
Some investors argue that these tokens are trading at a significant discount from their previous all-time highs, leaving room for further growth. However, whether the recent rally is fundamentally correct or not, the overuse of leverage among buyers raises the risk of a price correction.
According to data from CoinGlass, 30-day funding for perpetual futures has increased significantly, with bulls paying 4% to 6% monthly to maintain leveraged positions. While such costs may seem manageable during periods of strong volatility, they can quickly erode a trader's margins if prices drop or drop. Although experienced crypto traders tolerate 5% monthly funding fees, there are practical limits to such expenses.
Compared to historical peaks, consumption levels are not high
For context, during February's altcoin rally, some tokens had 30-day funding rates of up to 25%. These extreme levels are typically short-lived, as arbitrage desks enter into short positions in fixed-term contracts to capture cash payments while buying the asset without exposure to market risk.
Data from CoinGlass shows that current funding levels for ADA and XRP are up from the previous six months, but remain below their 12-month highs. Historically, this suggests that altcoins may still have room for more labor-intensive growth. However, interest rates alone are not enough to sustain the current bull run.
A similar situation occurred on January 11, following an 80% increase in the altcoin's market capitalization in three months. During that time, the 30-day funding rate for most altcoins rose to 8 percent. However, this rally stalled after a 15% price correction in the two weeks since it ended on January 25. This suggests that the increase in funding levels is not a consequence of bull markets.
What stands out in the current altcoin era is the difference in performance and usability between altcoins and mainstream cryptocurrencies. Bitcoin (BTC) and Ether (ETH) show a 30-day funding rate of just 2.5%.
This difference is partly due to the fact that investors can leverage BTC and ETH positions through alternative instruments such as monthly futures, options or exchange-traded funds (ETFs). However, other factors have fueled the altcoin frenzy, such as the boom in newly launched tokens such as the memecoin boom.
Tokens such as Goatseus Maximus (GOAT), NEIRO and Cat in a Dog's World (MEW) have exceeded one billion dollars in market capitalization in a short period of time. This speculative mania has raised the specter of altcoin projects with active development and strong community support. While these reviews may be overly optimistic, only time will tell if they are written or passed.
There is no immediate threat of liquidation on most altcoins, even though the amount of money is increasing. Current 30-day funding rates remain within a manageable range of 4% to 6%, although caution is warranted as higher interest volatility continues.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.