Bitcoin Funding Rate Turns Neutral On Top Exchanges: What Happened Last Time

Data shows the Bitcoin futures funding rate has declined to neutral on the top three exchanges. Here’s where this could lead the asset’s price.

In a new post on X, CryptoQuant author Axel Adler Jr has discussed about the latest trend in the Bitcoin Funding Rate for the three top exchanges in the cryptocurrency sector.

The “Funding Rate” here refers to an indicator that keeps track of the total amount of periodic fees that futures market holders are exchanging between each other on a given platform.

When the value of this metric is positive, it means the long investors are paying a premium to the short ones in order to hold onto their positions. Such a trend implies a bullish sentiment is the dominant one on the exchange.

On the other hand, the indicator being negative suggests the short holders are outweighing the long ones and a bearish mentality is shared by the majority.

Now, here is the chart shared by the analyst that shows the trend in the 7-day simple moving average (SMA) of the mean Bitcoin Funding Rate on the top three exchanges: Binance, Bybit, and OKX.

As is visible in the above graph, the 7-day SMA of the Bitcoin Funding Rate on these platforms rose to a notable positive level during the rally in the last couple of months of 2024, implying the futures market sentiment was quite bullish.

With the consolidation that has followed for BTC since the top, though, the enthusiasm on Binance and company has dropped. Following the latest bearish price action, the indicator has even returned to the 0% mark, meaning that the users are now completely undecided on where the cryptocurrency would go from here.

In the chart, the analyst has highlighted the past instances where the metric saw a similar retest of the 0% level. It would seem that Bitcoin has generally gone on to observe some bullish momentum every time that the indicator has touched this line during the current cycle.

The reason behind this trend lies in the fact that a mass liquidation event, popularly known as a squeeze, is more likely to affect the side of the sector that has the more investors.

During bull runs, whenever the Funding Rate becomes too positive, a long squeeze tends to occur, wiping out all the positions. These liquidations then provide fuel for a move in the downwards direction.

With the Funding Rate at neutral right now, both shorts and longs are at an about equal risk of seeing a squeeze, so Bitcoin could kickstart a rally without encountering an obstacle immediately.

At the time of writing, Bitcoin is trading around $97,200, down more than 2% over the last seven days.