Bitcoin Funding Rate Enters Deep Negative Territory — What’s Next?

The Bitcoin price has been one to watch over the past week, jumping by nearly 10% in less than seven days. According to the latest on-chain data, the bears might be in for an even longer ride as funding rates fall to critically low levels.

In a new Quicktake post on the CryptoQuant platform, crypto analyst Gaah revealed that the Bitcoin funding rates have been in a steep decline over the past few days, as the price builds the foundation for sustained recovery. The relevant indicator here is the Funding Rates metric, which tracks the periodic fee exchanged between traders in a derivatives market for a particular cryptocurrency (BTC, in this case).

A positive funding rate typically implies that the long traders (investors with buy positions) are paying a fee to short traders (investors with sell positions) in the derivatives market. On the other hand, when the funding rate is negative (as seen in the current scenario), it means that the periodic fee is rather being paid by the short traders to the long traders.

According to data from CryptoQuant, the Bitcoin Funding Rates metric fell to around -0.011, its lowest level since early February, when the price of BTC slumped toward the $60,000 level. “The market is very ‘easy’ and obvious to trade on [the] sell side,” Gaah wrote in the Quicktake post.

From an on-chain perspective, a negative funding rate signals that the majority of the market — are bears — betting against the price of Bitcoin. However, extremely negative funding rates have historically proven to be a “contrarian signal,” meaning that the asset price tends to move in the opposite direction of the crowd (the bears, in this scenario).

As prices begin to rise unexpectedly, several traders may be forced to close their overleveraged short positions, causing a further boost in the asset’s value in a phenomenon known as the “short squeeze.” As crypto analyst Gaah pointed out in their Quicktake post, the chances of a short squeeze are increasing by the day.

“Caution is needed when establishing positions in [the] current range, since it represents an area of buying demand,” the market pundit concluded.

After a fairly positive performance over the past week, the price action of Bitcoin has somewhat slowed down this weekend — as has been mostly seen on most weekends over the past year. As of this writing, the premier cryptocurrency is valued at $73,425, reflecting no significant movement in the past 24 hours.

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