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Bitcoin funding rate stays negative even as BTC price trades above $75K: What gives?
TL;DR
Bitcoin's funding rate remains negative despite the price trading above $75K, indicating bear-market losses and forced liquidations. Institutional inflows into Bitcoin ETFs suggest solid spot demand.
Key points
- Negative Bitcoin futures funding rates signal bear-market losses
- Forced liquidations occurred totaling $120 million
- Institutional inflows into Bitcoin ETFs are strong
- Spot demand for Bitcoin remains solid
- Bitcoin briefly dipped below $75K before rebounding
Key takeaways:
- Negative Bitcoin futures funding rates signal bear-market losses and forced liquidations rather than a shift in sentiment.
- Institutional inflows into Bitcoin ETFs and corporate accumulation suggest that spot demand remains solid.
Bitcoin (BTC) sold off in early trading hours at the US stock market open, briefly losing the $75,000 level before rebounding. This unexpected price swing triggered $120 million in liquidations of leveraged long (buy) BTC futures positions. During this ordeal, the Bitcoin funding rate has remained negative, which could hint at further downside and a potential advantage to the bears.
Bitcoin perpetual futures annualized funding rate. Source: Laevitas
The negative funding rate has been the norm since Monday, indicating a lack of demand for bullish leverage. Negative rates mean shorts (sellers) are the ones paying to keep their positions open. Under neutral conditions, the indicator should range between 5% and 10% to compensate for the cost of capital and exchange risks. At first sight, a 20% rate indicates conviction, but that is not the whole story.
Liquidations back Bitcoin’s negative funding rate
The perpetual contract funding rates are calculated every 8 hours on most exchanges. Temporary spikes to 20%, either positive or negative, are not particularly concerning for most traders, as they amount to a 0.05% daily fee. In essence, even if the position has extremely high leverage, such as 20x, the cost is 1%. Unless this issue persists for much longer, it is hardly a burden.
Bitcoin futures aggregate liquidation history, USD. Source: CoinGlass
Bitcoin bearish positions have been forcefully liquidated for $365 million since Monday, which has naturally eroded collateral on short positions. Traders could have opted to sit tight rather than rush to add margin, anticipating that funding rates would adjust on their own. Thus, the negative funding rate reflects losses from bears rather than conviction.
Q&A
What does a negative Bitcoin funding rate indicate?
A negative Bitcoin funding rate signals bear-market losses and forced liquidations rather than a positive shift in market sentiment.
How much was liquidated in leveraged long BTC futures positions?
$120 million in leveraged long BTC futures positions were liquidated during the recent price swing.
What is the significance of institutional inflows into Bitcoin ETFs?
Institutional inflows into Bitcoin ETFs indicate strong spot demand and corporate accumulation, suggesting confidence in Bitcoin's long-term value.
What happened to Bitcoin's price during US stock market open?
Bitcoin briefly lost the $75,000 level during early trading hours at the US stock market open before rebounding.
