The Bitcoin funding rates are at an all-time high of 6 months, according to data from the chain. This may lead to long market squeezes.
The Bitcoin Funding Rates Have A Very Positive Value Currently
An analyst from CryptoQuant pointed out in a post that BTC funding has risen to its highest level for six months.
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 shorts in order to keep their positions. This trend indicates that bullish sentiments are more prevalent in the market.
The funding rate is positive on the other side, which means that more shorts are in the market right now as they are being paid a fee by the longs.
Here’s a chart showing the trends in Bitcoin funding rates for the years 2022 to date:
Source: CryptoQuant| Source: CryptoQuant
You can see that Bitcoin funding rates are positive at present, as well as on the rise over the past few days, from the graph.
Indicator has reached its highest level in 6 months. That suggests there are lots of open longs in futures.
Last time high values were recorded for the metric was May 2018, shortly before which crypto prices plummeted from almost $40k to $30k.
A “long squeeze” took place in the market then. Squeeze is an instance in which a lot of liquidation takes place within an environment that’s overleveraged.
Long squeezes are marked by sharp price swings (when financing rates are high) that result in liquidation of large amounts of long contracts. This further amplifies the decline.
The increased plunge causes more contracts to be liquidated, which in turn leads to a further drop. Liquidations may then cascade and lead to a dramatic drop in the price.
A long squeeze, considering that Bitcoin’s funding rates currently are high, is possible, as the price continues to fall sharply.
BTC price
At the time of writing, Bitcoin’s price floats around $20.7k, up 1% in the last week.
The crypto market has seen a drop in value over the last 24 hours. Source: TradingView.| Source: BTCUSD on TradingView
Featured image by Kanchanara at Unsplash.com. Charts from TradingView.com and CryptoQuant.com.