- Bitcoin Funding Rates – A metric that measures the periodic fee that long and short traders on the futures market are exchanging with each other.
- Recent Trend – Bitcoin funding rates have recently turned negative, suggesting shorts are accumulating in the market.
- Liquidation Squeeze – If a sudden price swing flushes many positions simultaneously, a liquidation squeeze may occur fueling the price higher.
What Are Bitcoin Funding Rates?
Bitcoin funding rates measure the periodic fee that long and short traders on the futures market are currently exchanging with each other. When the value is positive, it means long holders are paying a premium to short holders to keep their positions, indicating bullish sentiment. Conversely, when it is negative, shorts pay the fee which suggests an overall bearishness in the market.
Recent Trend in Funding Rates
Recently, data shows Bitcoin funding rates have turned negative which indicates shorts are accumulating on the market. This is concerning as such a trend could lead to a liquidation squeeze if a sudden price swing occurs and flushes many positions simultaneously.
Previous Instances of Negative Funding Rates
The chart below displays how this metric has been trending over recent months:
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It can be seen that during February 2021 when Bitcoin’s rally stopped and plunged temporarily before shooting back up again there was an instance where funding rates became negative as investors had become bearish on further growth. This subsequently led to a liquidation squeeze fueling prices higher once more.
Will This Happen Again?
>It remains unknown whether or not this will happen again as investor sentiment can change quickly and dramatically depending on various factors such as news events or technical analysis indications. However, it is important to stay aware of any changes in funding rate values as they can provide insight into what direction the market may take next.
>In conclusion, recent data indicates that Bitcoin funding rates have recently turned negative which suggests shorts are accumulating on the market and could potentially lead to a liquidation squeeze if prices suddenly swing higher again. While it remains uncertain what will happen next, investors should remain vigilant of changes in these metrics as they may provide insight into future trends.