Is Bitcoin’s Negative Future Funding Rate a Sign of an Upcoming BTC Price Fall?
On April 18, Bitcoin (BTC) futures contracts showed strong interest in short (selling) positions, prompting speculation of further bearish momentum. This trend has influenced expectations of Bitcoin exchange-traded funds (ETFs) and rising interest rates, all contributing to negative market sentiment.
Bitcoin funding rate will be reversed after 6 months
Retail traders often choose a type of derivative for perpetual futures that closely mirrors the price movements of the underlying markets. To maintain balanced risk exposure, exchanges apply a payout every eight hours, known as a cash rate.
This ratio turns positive when buyers (longs) seek more leverage and sellers (shorts) seek more leverage. Typically, independent funding is around 0.025 per 8-hour period or 0.5% weekly. In contrast, negative funding rates, although rare, appear to be very poor indicators.
BTC funding turned negative on April 15th and again on April 18th, hitting a more than six-month low, indicating that appetite for long positions has waned. This shift in market sentiment is particularly evident after significant price movements, as seen in the 13.5% drop in Bitcoin price between April 12 and April 18.
Market volatility often shows that the strongest effects occur when confidence is strong among bears. For example, some analysts interpret the $72,000 double-top formation as a sign that the downtrend may last until June.
In terms of the broader economy, recent U.S. data showing better-than-expected inflation and stronger retail sales have reduced investor aversion to risk. The consumer price index rose 3.8 percent in March, above the Fed's 2 percent target, while retail sales rose 0.7 percent year over year.
A thriving economy makes it less likely that the Federal Reserve will cut interest rates, which tends to favor fixed income investments. According to Reuters, a strong labor market has supported consumer spending, although financial difficulties among low-income households remain a concern.
Bitcoin spot ETF flows rule the market sentiment
Farside Investors reported net outflows from spot Bitcoin ETFs on April 17 were $165 million, marking the fourth consecutive day of outflows. This is a stark contrast to early April, when these ETFs attracted $484 million despite continued inflows from grayscale GBTC funds.
The data suggests that Bitcoin bulls may be pulling back from use after a surge of optimism. In March 2024, there were seven occasions when the funding rate was above 1.2% per week. This resulted in high volatility for days, resulting in high 48-hour liquidity: $300 million on March 5, $261 million on March 16, and $225 million on March 19.
It's clear that this volatility has hurt bulls' morale, especially after Bitcoin's price surged 12.3 percent in March. Despite accurately predicting price movements, large price fluctuations have depleted their margin reserves and led to forced payouts.
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To get a deeper understanding of the market sentiment, traders are advised to look at the Bitcoin options markets, where the increasing demand for put (sell) options typically focuses on neutral-to-carry pricing strategies.
Recent data indicates that demand for call (buy) options has exceeded that of put (sell) options by 35% in the past week. Basically, there is currently no evidence to suggest an imminent price correction or bearish conditions in the Bitcoin futures and options markets. If anything, the data confirms that the brief dip below $60,000 on April 17 was not enough to fuel long-term bearish sentiment.
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.
