When Will Bitcoin Downtrend End? This Signal Could Be One To Watch

An analyst has explained that a futures market signal could be one to wait for before the latest Bitcoin drawdown can finish.

As pointed out by an analyst in a CryptoQuant Quicktake post, the BTC funding rate has been reducing recently, but it’s still at positive levels. The “funding rate” refers to an indicator that keeps track of the amount of periodic fee that futures contract holders are exchanging between each other currently.

When the value of this metric is positive, it means that the long traders are paying a premium to the short holders right now in order to hold onto their positions. Such a trend suggests that a bullish mentality is dominant in the futures market.

On the other hand, the indicator being negative implies a bearish sentiment may be shared by the majority of the traders as the shorts are outweighing the longs at the moment.

Now, here is a chart that shows the trend in the Bitcoin funding rate over the past year:

As displayed in the above graph, the Bitcoin funding rate has been almost entirely positive since mid-October, suggesting that the longs have been the dominant force in the sector.

Around the start of the year, the metric’s value had hit especially high levels, but after all the volatile price action BTC has seen since then, the indicator has considerably cooled off.

The funding rates have still been at positive levels recently, however, implying that traders haven’t given up on their bullish sentiment just yet. This may not entirely be ideal for the asset to rebound.

According to the quant, for the ongoing Bitcoin downtrend to end, “we need to wait for a capitulation signal from market participants.” In the chart, the analyst has highlighted the last few instances such a capitulation signal appeared for the cryptocurrency.

Such negative spikes for the funding rate imply that the traders have become overly pessimistic about the market. Historically, BTC has tended to move against the expectations of the majority, so it’s not surprising that bottoms have been more likely to form when the traders have been highly bearish about the asset.

Red spikes in the indicator like those shown in the chart may not always perfectly coincide with a low in the price, but they are still nonetheless a sign that tides could change for the coin.

At present, the Bitcoin funding rates are still at positive levels, so some more downtrend may need to occur in the price, before these longs are liquidated and the futures balance shifts towards the other side.

Bitcoin had plunged under the $39,000 mark just yesterday, but the coin appears to have bounced back today as it’s now once again floating above $40,000.