Bitcoin funding rates drop flat for weeks as the market pauses


Funding rates for Bitcoin have recovered from their low in September 2020, to the extent that they are now on a sideways trend since April 18.

Many analysts are looking to Bitcoin Funding Rates for their potential to predict upcoming trends in the flagship cryptocurrency market. In retrospect, they indicate periodic payments that traders with open short positions pay to those with open long positions, all based on the difference between the perpetual contract market and the spot price.

A positive funding rate reflects traders’ optimistic bias, showing that long traders are paying short traders in a market that seems heavily skewed upwards. Likewise, when Bitcoin’s funding rate turns negative, it means that traders are bearish, meaning that short traders are paying long traders.

But…

… Based on the Arcane Research report, funding rates have been neutral for over a week. The research and analysis company added that the short-term conflict between bears and bulls would eventually favor the latter, given the incredible recovery in Bitcoin price early this week.

The BTC / USD exchange rate fell more than 27 percent after hitting its all-time high of $ 64,899 on April 14. It was not until this Monday that the pair showed any signs of recovery. The recovery was up to 12 percent over a week-to-date timeframe, which coincided with neutralizing funding rates.

“The fact that the funding rate has remained neutral during Bitcoin’s strong recovery yesterday is a healthy sign for the future,” Arcane Research wrote.

Bitcoin Price vs Funding Rates.  Source: Arcane Research
Bitcoin Price vs Funding Rates. Source: Arcane Research

More surging tailwind for Bitcoin came from diminishing open interest. Arcane Research quoted the derivatives market data from the April 27 session, noting that uncertain BTCUSD contracts hit their lowest level since March 8. That reflected a more cautious sentiment in the derivatives market. It also meant that Bitcoin’s ongoing price recovery was based entirely on spot markets.

“It makes the current price action more sustainable,” added Arcane Research.

Part of the reason Arcane Research seemed bullish is the derivatives market’s ability to drive bitcoin prices tremendously. Traders typically open high leveraged trades as they expect maximum returns from uncertain positions. Nevertheless, if their bets fail, this increases their propensity to sell their real bitcoin assets to cover their margin positions. This stimulates the sales pressure in the market.

What is the next step for Bitcoin?

According to ByBt.com, the bitcoin options contract expiring on April 28 has a majority target price of nearly $ 52,000. That increases the pressure on bulls to protect the market from possible bearish attacks. If they fail, one can expect a breakdown to the said lower level.

It also coincides with the 100-day simple moving average, which served as support for the ongoing recovery in the Bitcoin price.

Bitcoin is bouncing back on the purple wave (100-DMA).  Source: BTCUSD on TradingView.com
Bitcoin is bouncing back on the purple wave (100-DMA). Source: BTCUSD on TradingView.com

As of now, the BTC / USD exchange rate aims to move above its 20-day exponential moving average (20-DMA).

Image by Marcel Langthim from Pixabay 

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