Investment

Supreme fear? The bitcoin funding rate falls to its lowest level in 7 months


Bitcoin funding rate (BTC) has fallen to levels that have not been seen as the price of bitcoin since September 2020 fell below $ 52,000 April 18 Quantum trader and analyst Lex Moskovski says he shows fear has returned to the market.

According to Glassnode, the average funding rate for bitcoin futures on all exchanges fell to just -0.03% on Sunday.

What is the funding rate and why is it declining?

Bitcoin futures exchanges use a mechanism called “financing” to balance the market.

The mechanism works simply: if there are more markets or buyers in the market, the funding rate rises and vice versa.

Thus, when the funding rate changes to negative, it means that most of the market sells bitcoins for a short time, which indicates market fear.

Moscow he said:

“Gentlemen, it has been a long time since we have seen the financing of this negative. Fear.”

The degree of continuous financing of bitcoin futures. Source: Glassnode

Earlier this week, bitcoins hovered around $ 64,000 in anticipation of Coinbase’s public listing. At its lowest point on April 18, BTC dropped to just $ 50,000.

From the daily highest point to the lowest, the price of bitcoin fell by almost 15% against the US dollar.

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

During Coinbase’s public listing week, the bitcoin funding rate was stable at 0.1% to 0.15% on major futures exchanges such as Binance and Bybit.

This shows that many traders aggressively coveted or bought bitcoins, which caused the futures market to overheat.

When this happens, the incentive to sell bitcoins shortly increases massively, exposing the market to the risk of a large cascade of liquidations.

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15-minute price chart for BTC / USDT (Binance). Source: Tradingview

Will bitcoins recover soon?

It has been speculated over the past 48 hours that a sudden drop in the hash rate of the bitcoin blockchain network has led to a drop in price.

April 16 major Chinese mining facilities and pools saw outages power outages occurred after China’s Xinjiang region.

Subsequently, the bitcoin hash rate then dropped rapidly, leading to fears that this would hinder market sentiment around BTC.

However, Adam Cochran, a partner at Cinneanhaim Ventures, said the decrease in bitcoin hash speed was unlikely to have caused the BTC price to fall. He he said:

“The idea that a power outage yesterday in a mining area in China led to a drop in $ BTC is utter nonsense, as are the false correlation charts above. But even worse, when you run math *, there is no correlation * If someone believes in correlation and has enough data to create a graph, ask them for confirmation. If they have no idea how to run a regression test, then they don’t really know if it correlated or not. “

If the decline in the price of bitcoins was not caused by fundamental factors, but was rather purely technical due to the crowded futures market, the reason for the rapid recovery is strengthened.

In the short term, it is favorable for bitcoins to stay around the $ 56,000 support area, as the futures market finds balance and funding rates are stabilizing.



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