Busy business? Retail trading in BTC, ETH, SOL, XRP has never been this long in over a year.

A measure of cryptocurrency market capitalization has been trading in a relatively narrow upward channel over the past 10 weeks. This suggests that the bullish momentum remains intact, despite the fact that the $1.7-trillion market cap has failed to break even.

In December, the price of Bitcoin (BTC) hit a 20-month high above $44,000, while Ether (ETH) rose by $2,400. Some analysts argue that long-term demand (buying) creates a correction of excessive demand, but is that so?

Whether or not the bullishness is driven by the pending approval of a Bitcoin exchange-traded fund (ETF) in March, there will be opportunities to run as traders rely heavily on futures markets.

It is for this reason that analysts monitor demand to assess the risk of sales driven by commodity markets. Let's take a closer look at how this is done.

Pro traders are (moderately) bullish on Bitcoin.

To figure out how whales and market makers are positioned, one needs to analyze the Bitcoin futures premium, known as the base rate.

Professional traders choose monthly contracts due to the lack of liquidity, which makes these instruments 5%-10% higher than regular spot markets, which ensures a longer settlement period.

The data shows that the three-month Bitcoin futures premium has remained above the 10% neutral threshold since December 1, indicating excessive demand for long positions.

Still, BTC's price has gained 11.5% in December alone, so the current 15% premium is somewhat expected. On the other hand, those willing to bet on price declines will benefit from a healthy cushion at the moment as the futures contract is trading at $1,800 above the spot price.

The future premium will expire on the specified three-month contract expiry date (March 30). Therefore, arbitrage desks and market makers are encouraged to short (sell) futures and short the position by buying bitcoin. Known as “cash and collateral,” this business resembles a fixed income market structure.

BTC, ETH, SOL, XRP Funding Rates Annual High

On the other hand, the instrument that retail traders prefer to use is a perpetual contract, also known as a reverse swap. These contracts have exchange rates that are paid every eight hours. Therefore, their prices are more closely related to spot markets than the typical premium found in monthly contracts.

In a sense, it is easier for traders, but at the same time, it introduces the uncertainty of variable financial costs.

A positive funding ratio indicates that long positions (buyers) require more leverage, while short positions (sellers) require more leverage and cause the leverage to turn negative.

As weekly funding volume hit a one-year high, futures open interest ranged from 1% to 1.2% for the top five coins, including XRP (XRP) and Solana's SOL (SOL).

Is the crypto market overheated?

Typically, excessive optimism can cause such indicators to remain above 2% for two weeks or more unless the asset price experiences an unexpected correction or price stabilization period.

On the other hand, during bear markets, liquidity can remain negative as long as the demand for short positions does not outweigh the benefits for long positions.

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While the current average weekly funding rate of 1.2% may seem excessive, most retail traders are looking for short-term gains, perhaps up to two weeks before the Bitcoin ETF's decision. Therefore, most can absorb the cost – if they even know it exists.

Investors' greed and lack of experience in calculating the value of funding can create an environment for huge payouts during a bull run. This explains why there is no real limit to what can be considered excessive in terms of subsidy rates, at least in the short term.

Judging by the three-month futures premium, there is nothing unusual with cryptocurrency futures. In other words, the risk of mass spillovers cannot occur as a result of excessive leverage by retailers using perpetual contracts.

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.