Using leverage to buy Bitcoin ( BTC ) perpetual Futures Contract has dropped to its lowest in more than six months, a trend that some analysts consider extremely bullish. However, the funding rate of BTC Futures Contract , which measures demand between long positions (buyers) and short positions (sellers), is being heavily influenced by past performance.
Let's XEM whether Bitcoin's funding rate signals a buying opportunity.
Bitcoin's funding rate is implemented by exchanges to manage the use of leverage because any trade involving perpetual Futures Contract requires buyers and sellers to be of equal size. As buyers become more active, the funding rate will enter positive territory, indicating that they are paying for leverage. Basically, one party will compensate the other party to ensure the safety of the exchange.
Source: Inmortal
In a recent X post, analyst Inmortal attempted to link periods of negative funding rates to previous bull markets. While it is not a problem to conduct checks and use historical data, this time period ranges from a few days to more than two months. Furthermore, external factors may have influenced the price increase and subsequent funding rate reversal.
For example, the collapse of Silicon Valley Bank on March 23, which held $3.3 billion in USDC reserves, adversely affected Bitcoin's funding rate. However, after the US authorities announced measures to protect customer deposits, Bitcoin price regained support at $24,000 and the funding rate moved into positive territory. Therefore, relying on a single measure to establish cause and effect is not very effective.
Similarly, the funding rate increase in October 2023 coincided with a milestone for Grayscale Investments, which won approval to launch a spot Bitcoin ETF despite opposition from investors. United States Securities and Exchange Commission. On October 23, federal Judge Neomi Rao criticized the SEC's decision as “arbitrary and capricious,” noting that the regulator was unable to demonstrate Bitcoin's distinctiveness from other products. similar finances.
Regardless of Bitcoin's price outlook in 2024, it is clear that BTC has struggled to maintain upward momentum since April 12. Some analysts see a short-term spike above $72,000 on April 8 April formed a double top pattern, suggesting a reversal to the downside. The subsequent drop below $60,000 on April 17, which coincided with escalating conflict in the Middle East and gold prices soaring to record highs, bolstered bears' confidence.
Declining Capital into spot Bitcoin ETFs have also dampened enthusiasm for long leveraged BTC positions. Given that institutional investors were the main driving force behind Bitcoin's recovery in March, it is reasonable to expect demand for leveraged Longing positions to decline in these conditions. Therefore, BTC 's funding rate should be used to reflect recent price movements rather than as a predictor.
To XEM whether the decline in leveraged long positions reflects broader market sentiment, it is useful to analyze demand for stablecoins in China. Typically, excessive retail demand for cryptocurrencies causes stablecoins to trade at 1.5% or more above the official US dollar rate, while bear markets will result in discount.
Trade peer-to-peer USC Coin (USDC) vs USD/CNY | Source: OKX
The USDC premium in China has remained just above the 1.5% neutral threshold, defying data from BTC Futures Contract funding rate. From one perspective, bulls can rest easy knowing that the drop to a low of $59,700 on April 17 did not push Asian investors into panic. This observation supports the idea that Bitcoin's funding rate should increase when trader confidence returns, not the other way around.
You can XEM the coin prices here.
Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
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According to Cointelegraph
