Between mid-June to mid-July, the Bitcoin funding rate had experienced a negative month. The previously muted funding rates quickly fell below neutral, and continued to decline the following month. But, funding rates have returned to neutral this week. This is an important change.
Exchanges Funding Rate Recovery
As the bitcoin price struggled, the funding rates for bitcoin had reached low levels. This was concerning given that funding rates were expected to improve as the digital asset began to basically trade at what was described as a “discount.” This would not be farther from the truth, as funding rates fell to their lowest points this June. The data indicated that traders were still cautious about the cryptocurrency, and they resisted moving in.
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Good news! Last week’s funding rate levels remained at neutral. Both Binance and Bybit cryptocurrency exchanges recorded funding rates levels of 0.1%. As bitcoin prices rose above $23,000, the return to neutral was achieved.
Arcane Research: Funding Rates Return to Neutral| Source: Arcane Research
The same path was followed by open interest, but it reversed itself during the week of the fall in the price. The open interest in bitcoin did not differ from the week before, even though it declined. This shows that the market is still heavily leveraged.
Bitcoin Traders Turning Bullish
It is an indication of the positive mood among investors and traders that bitcoin funding rates have recovered to a neutral point. While it doesn’t mean that investors have returned to bullish levels, the recovery of bitcoin funding rates is a sign that they are looking more favorably on the cryptocurrency market.
BTC retraces downwards | Source: BTCUSD on TradingView.com
It tracks along with the Fear & Greed index which has now moved out of the ‘Extreme Fear’ territory for the first time in almost three months. It saw an incredible bounce from last week’s sentiment, with a score of 18 putting it in extreme fear. The market remains fearful but the recovery is bringing back faith. You can see it in the building buying pressure over the last week.
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Depending on the performance of Bitcoin in the market, the correlation between funding rates and bitcoin’s price can be either positive or negative. Funding rates might rise above neutral if the market continues to recover.
Featured Image from CNBC. Charts from Arcane Research and TradingView.com.
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