Highest fear? Bitcoin funding rates plummet to their lowest level in 7 months


Bitcoin’s funding rate (BTC) has dropped to levels not seen since September 2020, when Bitcoin’s price fell below $ 52,000 on April 18. Quant trader and analyst Lex Moskovski shows that fear has returned to the market.

According to Glassnode, the average financing rate for Bitcoin futures on all exchanges fell to around -0.03% on Sunday

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What is the funding rate and why is it important to bring it down?

Bitcoin futures exchanges use a mechanism called “funding” to strike a balance in the market.

The way the mechanism works is simple: if there are more longs or buyers in the market, the funding rate increases and vice versa.

When the funding rate turns negative, it means that most of the market is selling bitcoin short, indicating market fears.

Moskovski said:

“Wow, it’s been a long time since we saw how we funded this negative. Fear.”

Bitcoin Futures Perpetual Funding Rate. Source: Glassnode

Bitcoin was trading around $ 64,000 earlier this week in anticipation of Coinbase’s listing. At the lowest point of the day on April 18, BTC fell to just $ 50,000.

From the highest to the lowest point of the day, the price of Bitcoin fell nearly 15% against the US dollar.

Market sentiment can change so quickly because many traders use high leverage on the major exchanges.

During Coinbase’s listing week, Bitcoin’s funding rate on top futures exchanges like Binance and Bybit was stable at 0.1% to 0.15%.

This shows that many traders were aggressively craving or buying Bitcoin, which insanely overheated the futures market.

In this case, the incentive to short Bitcoin increases massively and the market is exposed to the risk of a large liquidation cascade.

BTC / USDT 15 Minute Price Chart (Binance). Source: trade view

Will Bitcoin Recover Soon?

For the past 48 hours, it has been speculated that the sudden drop in the hash rate of the Bitcoin blockchain network caused prices to drop.

On April 16, major Chinese mining facilities and pools went down after power outages in the Xinjiang region of China.

As a result, Bitcoin’s hash rate dropped quickly afterwards, raising concerns that it would hurt market sentiment around BTC.

However, Adam Cochran, partner at Cinneanhaim Ventures, said the decline in the bitcoin hash rate likely did not result in a drop in the price of BTC. He said:

“The idea that a power outage last night in a mining region in China caused the BTC dollar to decline is utter nonsense, as is the false correlation graphs above. But worse when you do the math * there is no correlation * If someone believes there is a correlation and has enough data to graph it, ask them for the evidence. If they have no idea how to run a regression test, they have no idea whether or not they are correlated. “

If the Bitcoin price drop was not caused by fundamental factors, but was purely technical in nature due to an overcrowded futures market, the argument for a rapid recovery is reinforced.

In the short term, it is beneficial for Bitcoin to stay in the support area of ​​around USD 56,000, as the futures market finds serenity and the financing rates stabilize.