According to on-chain data, the Bitcoin funding rate still has a high positive value. It is possible that this could lead to more cryptocurrency decline in the short term.
The Bitcoin Funding Rate has Been at A Positive Value Over the Last Few Days
According to a CryptoQuant analyst, the current funding rates suggest that the market is experiencing a decline.
The “funding rate” is an indicator that measures the periodic fee that traders in the Bitcoin futures market have to pay each other.
If this value is higher than zero it indicates that long traders pay a premium in order to maintain their positions. These values are indicative of a more bullish market sentiment.
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Conversely, the negative value of the indicator indicates that majority sentiment is bearish at the moment as shorts have been taking longs.
Below is a chart that illustrates the trends in Bitcoin funding rates for the last six-months:
According to CryptoQuant, the value of this metric appears positive over the last week. Source: CryptoQuant| Source: CryptoQuant
The graph above shows that whenever Bitcoin’s funding rate has reached an extremely high positive level in the past few months, its price has usually seen a drop not long afterwards. Similar to the above graph, BTC’s value has seen some upward trend after negative spikes.
Here’s what’s going on here: high positive values mean longs are piling up in the market. If the market experiences a sudden drop in value, it can cause a number of longs to be liquidated. This can lead to a further decline in prices and, ultimately, more long positions being liquidated. Such an event where liquidations cascade together is called a “squeeze” (or in this case, a long squeeze).
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When the cryptocurrency price was at $23k, funding rates reached another positive peak. The price then dropped. However, the value of the indicator at the moment looks positive which could indicate that there is still a decline.
BTC Prices
At the time of writing, Bitcoin’s price floats around $22.7k, up 6% in the last seven days. In the last month, crypto’s value has risen by 8%.
Below chart displays the trends in the value of the coin during the last five working days.
The crypto market has seen a decline in value over the past days. Source: BTCUSD at TradingView| Source: BTCUSD on TradingView
Featured image by Brent Jones, Unsplash.com. Charts from TradingView.com and CryptoQuant.com.
