Cryptocurrency analytics firm Alphractal has provided insight into the latest Bitcoin market dynamics by revealing the relationship between the Funding Rate of perpetual futures contracts and Bitcoin price action.
The Funding Rate, which reflects the balance between buyers and sellers, tends to rise when optimism dominates the market. A high Funding Rate usually indicates an increase in long positions as traders expect an increase in prices.
However, Alphractal's analysis points to an interesting trend in current market behavior. While the Funding Rate is still high, the price of Bitcoin has started to fall. The company explains three possible explanations for this phenomenon:
- Over-Optimism: A wave of optimism entered the market during the recent Bitcoin price rally, including the Funding Level. However, the lack of sustained buying pressure prompted a price correction.
- Selling pressure: Long holders taking profits or strategically entering short positions at high Funding Rate levels may have pulled prices back.
- Short Term Support: Despite the recession, a positive funding level reflects confidence in the market. Another stabilization or decline in the Funding Rate could signal a possible shift in sentiment.
Alphractal warns that the combination of a persistently high Funding Rate and falling prices could increase the risk of a market meltdown. Tracking the direction of the funding level could be crucial for predicting Bitcoin's next moves.
* This is not investment advice.
Source: https://en.bitcoinsistemi.com/analytics-firm-analyzes-funding-rates-in-bitcoin-heres-how-to-interpret-them-and-the-movement-in-the-recent-drop/
