Bitcoin Funding Rate Flattened, But Will BTC Bulls Be Happy And Buy The Cats?
Buyer interest in bitcoin (BTC) perpetual futures has fallen to its lowest level in more than six months, a trend some analysts see as extreme. However, BTC futures funding rate, which measures the interest between long (buyers) and short (sellers), historical data shows that it has a significant impact on past performance.
Let's examine whether Bitcoin's flat funding rate is a sign of a buying opportunity or not.
Bitcoin's funding rate is often a backward-looking measure.
As with perpetual contracts, each trade requires an equal amount of buyers and sellers, so the BTC funding rate is applied by exchanges. When buyers are more aggressive, the funds rate will be positive, indicating that they are paying for leverage. Basically, one party pays the other, which ensures that the exchange does not carry the risk of exposure.
Inmortal's posts on X's social network try to link the negative amount of money to previous bull markets. While there is no problem with performing backtests and employing historical data, these periods range from a few days to a couple of months. Moreover, external factors can affect the rate of increase and subsequent financing rate.
For example, Silicon Valley Bank's March 23rd intervention in holding $3.3 billion in US dollar (USDC) reserves negatively impacted Bitcoin's funding rate. However, after the US authorities announced measures to protect investors' deposits, the price of Bitcoin regained the support level of $24,000, and the fund rate turned positive. Therefore, relying on a single measure to establish cause and effect is not very effective.
Similarly, the fund's October 2023 increase coincided with a significant event for Greyscale Investments, which received approval to launch a Bitcoin exchange-traded fund (ETF) despite opposition from the US Securities and Exchange Commission. On October 23, federal judge Naomi Rao criticized the SEC's decision as “arbitrary and capricious,” saying the regulator failed to explain how Bitcoin differs from similar financial products.
Bitcoin's underperformance relative to gold has helped create depression.
In the year Regardless of the outlook for Bitcoin's price in 2024, it is clear that BTC has struggled to maintain the bullish trend since April 12. Some analysts suggest that the brief rise above $72,000 on April 8 may indicate a double-top formation, indicating a bearish trend. A drop below $60,000 on April 17, coupled with escalating conflicts in the Middle East and rising gold prices, boosted bear traders' confidence.
Reduced inflows into the spot Bitcoin ETFs dampened enthusiasm for BTC long positions. Given that institutional investors were the main drivers of Bitcoin's rally in March, it is reasonable to assume that demand for leveraged longs will decrease as market conditions change. Therefore, BTC's funding rate reflects recent price movements rather than predicting them.
Related: SEC Reviews New Rules for Bitcoin Options Trading
It is useful to analyze the stable coin demand in China to determine whether the reduced interest in long positions in use reflects broader market sentiment. Typically, excessive retail demand for cryptocurrencies leads the stablecoin to trade at a 1.5% or more discount against the official US dollar rate, while bear markets result in declines.
The USDC premium in China has maintained levels above the neutral threshold of 1.5%, which is subtly challenged by BTC futures funding prices. On the one hand, bulls can take solace in knowing that the April 17 low to $59,700 did not send Asian investors into panic mode. This observation supports the idea that BTC funding rates may increase as trader confidence returns, not the other way around.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.