Bitcoin’s negative funding rate stops when BTC trades above $75,000
Main Receptors:
Negative Bitcoin futures funding rates indicate bear-market losses and forced liquidations rather than a change in sentiment.
Institutional inflows into Bitcoin ETFs and corporate stocks suggest that demand for space is strong.
Bitcoin (BTC) sold off in early trading hours at the US stock market open, briefly missing the $75,000 level before buying back. This unexpected price swing triggered the liquidation of $120 million worth of long (buy) BTC futures positions. During this ordeal, Bitcoin's funding rate has remained negative, which could signal further gains for the bears.
Negative financial support is normal since Monday, which indicates a lack of bullish interest. A negative price is what shorts (sellers) pay to keep their position open. In neutral conditions, the index should be 5% to 10% to compensate for the cost of capital and exchange risks. At first glance, the 20% rate suggests guilt, but that's not the whole story.
Liquidations return the negative funding rate of Bitcoin
On most exchanges, the perpetual contract funding rate is calculated every eight hours. A temporary increase of up to 20%, whether positive or negative, is not of particular concern to most traders, as it is a 0.05% daily fee. Basically, even if the position has a very high profit, for example 20x, the price is 1%. This is not a burden unless the matter continues for a long time.
Since Monday, Bitcoin bearish positions have been aggressively taken by $365 million, which has naturally eliminated holdings on short positions. Traders preferred to sit tight rather than rush to increase margins, assuming that funding rates would adjust themselves. Therefore, a negative funding ratio indicates losses from bears rather than delinquency.
Bitcoin's daily movements have largely tracked the S&P 500 index over the past two weeks. The US stock market jumped to an all-time high on Thursday, while Bitcoin is far from the $126,200 peak. A series of failures to re-establish the $76,000 level partly explains the lack of enthusiasm in the BTC derivatives markets. Still, the latest US economic data is supportive of risk markets, including Bitcoin.
US industrial production fell 0.5% in March from the previous month, according to data released by the Federal Reserve on Thursday. Consumer durables were negative highlights, automotive production decreased by 2.8%. In parallel, ongoing jobless claims rose 31,000 to a seasonally adjusted 1.818 million in the week ended April 4.
Against the odds, the S&P 500 has benefited from the deepening recession, which has forced the government to step up stimulus measures. Inflationary pressures from rising oil prices reduce the incentive to hold fixed income investments.
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Bitcoin options market data gives no indication of excessive demand for low price protection. Put (sell) options paid on Derbit have lagged behind similar call (buy) instruments over the past week. A net inflow of $921 million into US-listed Bitcoin spot ETFs in five days, along with continued stockpiling of Strategy (MSTR US), boosted investor confidence.
Currently, Bitcoin's negative funding rate does not raise alarms, especially as institutional investors' interest in BTC markets remains strong.
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