After an impressive run, Bitcoin fell close to $50K as the cryptocurrency industry saw one of the most damaging corrections this bull season. Despite the fact that the crypto-asset recovered quickly and was trading at $56,859 at the time of writing, derivative traders are not optimistic about its price action.
This was because the funding rate of Bitcoin slid to a 7-month low which, in turn, triggered massive uproar in the market. The figure was in the negative zone, a level last seen in September 2020 when the crypto-asset was priced around $10K.
Revealing the same, Lex Moskovski, the CIO of Moskovski Capital tweeted,
“Wow, it’s been a long time since we’ve seen funding this negative. Fear.”
What Does Negative Bitcoin Funding Rate Mean?
Funding rate essentially demonstrates the premium that futures traders have to pay [or receive] to order for them to keep a position open.
A negative funding rate, on the other hand, implied that a majority of investors are shorting or selling, which was further indicative of a rising sentiment of fear in the BTC market. In short, more contracts were found to be betting against Bitcoin’s price rising than contracts betting in favor of it.
On the contrary, a funding rate on the positive in Bitcoin derivatives markets signifies that investors with long positions pay those with short positions. The funding rate spikes have historically coincided with a strong optimism and high leverage from short-term trader.
For instance, the funding rates had previously regained some upward momentum in the last week March similar to the final weeks of January and February.
The market sentiment has flipped rapidly. This was observed from the fact that ahead of the much-awaited Coinbase’s listing on Nasdaq, Bitcoin’s funding rate was neutral at 0.1%-0.15% in larger derivative platforms such as Binance. The world’s largest crypto-asset soared to an ATH as many traders continued to long or buy it Bitcoin, thus overheating the futures market.
Soon after Coinbase went public, Bitcoin noted a double-digit crash from above $60K to a little over $50K which was enough to send panic among investors that use high leverage across major exchanges. The cascading liquidations during this pullback even eclipsed that of the Black Thursday crash of March 12, 2020.