Key takeaways:
-
Negative Bitcoin futures funding rates signal bear market losses and forced liquidations rather than a change in sentiment.
-
Institutional inflows into Bitcoin ETFs and corporate accumulation suggest spot market demand remains solid.
Bitcoin (BTC) sold off in early trading at the opening of the US stock market, briefly losing the $75,000 level before recovering. This unexpected price change resulted in the liquidation of $120 million worth of long leveraged (buy) positions in BTC futures contracts. During this ordeal, Bitcoin’s funding rate remained negative, which could indicate further declines and a potential advantage for bears.
A negative funding rate has been the norm since Monday, indicating a lack of demand for bullish leverage. Negative interest rates mean that sellers pay to keep their positions open. In neutral conditions, the ratio should be between 5% and 10% to compensate for the cost of capital and currency risk. At first glance, a 20% figure indicates conviction, but that’s not the whole story.
Liquidations support Bitcoin’s negative funding rate
On most exchanges, financing rates for perpetual contracts are calculated every 8 hours. Temporary spikes of up to 20%, positive or negative, are not particularly concerning to most traders as they amount to 0.05% of the daily fee. Basically, even if a position has extremely high leverage, such as 20x, the cost is 1%. If this problem does not persist any longer, it will not be a burden.
As of Monday, Bitcoin bearish positions were forcibly liquidated for $365 million, which naturally resulted in the erosion of miniature position hedges. Investors could remain placid rather than rushing to add margins, expecting funding rates to adjust on their own. So a negative funding rate reflects losses due to bears, not conviction.
Over the past few weeks, Bitcoin’s intraday movements have largely tracked the S&P 500 Index. The U.S. stock market hit an all-time high on Thursday, while Bitcoin remains far from its high of $126,200. The subsequent failure to restore the $76,000 level partially explains the lack of enthusiasm in BTC derivatives markets. Still, the latest round of US economic data is supporting risk markets, including Bitcoin.
According to data released by the Federal Reserve on Thursday, U.S. industrial production fell 0.5% in March compared to the previous month. Consumer durables had a negative impact, with car production falling by 2.8%. Meanwhile, jobless claims still rose by 31,000 to a seasonally adjusted 1.818 million in the week ended April 4.
While counterintuitive, the S&P 500 has benefited from a growing economic recession that has forced the government to accelerate stimulus measures. Upward pressure on inflation, also driven by rising oil prices, reduces incentives to hold fixed-income investments.
Related: Bitcoin bull run is ‘still too early’ to call as demand lags capital exits – analyst
Bitcoin options market data shows no signs of excessive demand for downside price protection. Last week, the premium paid for put (put) options on Deribit lagged behind equivalent put (call) instruments. A net inflow of $921 million into US-listed Bitcoin spot ETFs over five days, along with continued accumulation from the strategy (MSTR US), boosted investor confidence.
Bitcoin’s negative funding rate is not a cause for concern at this point, especially as demand from institutional investors remains sturdy in BTC spot markets.
This article was created in accordance with Cointelegraph’s Editorial Policy and is for informational purposes only. It does not constitute investment advice or recommendation. All investments and transactions involve risk; Readers are encouraged to conduct independent research before making any decisions. Cointelegraph does not warrant the accuracy or completeness of the information presented, including forward-looking statements, and is not liable for any loss or damage arising from your reliance on this content.
