Data shows that Bitcoin funding rates on exchanges have turned negative, a sign that short positions have now become the dominant force in the market.
Bitcoin Funding Rates Turn Negative After Market Crash
As pointed out by an analyst in a CryptoQuant Quicktake publishBitcoin funding rates have seen a sharp decline recently. The “financing rate”refers to a metric that monitors the periodic rate at which holders of derivatives contracts are currently exchanging them with each other.
When the value of this indicator is positive, it means that long investors are paying a premium to short investors to maintain their positions. Such a trend implies that a bullish sentiment is shared by the majority in the sector.
On the other hand, the fact that the metric is negative implies that a bearish mindset may be dominant in the market, as short position holders outnumber long position holders.
Now, here is a chart showing the trend of this Bitcoin indicator for all exchanges over the past few months:
As shown in the chart above, Bitcoin’s funding rate has been positive throughout 2024, except for a few small dips into the negative region, until this last failurewhich finally brought the indicator to notable red values.
The previous positive values were naturally due to the market having a bullish atmosphere, so the average investor was trying to bet on the price rising. From the chart, it is visible that this positive sentiment was strongest during the recovery to the all-time high (ATH) price, fueled by spot demand for exchange-traded funds (ETFs).
During the consolidation period that followed this rally, BTC suffered some notable drops, but they were not enough to shake off the bullish mood. The recent sharp drop, however, seems to have finally caused investors to have a bearish outlook on the cryptocurrency.
Bitcoin’s crash resulted in a huge amount of long liquidations in the market, triggering what is known as a squeeze. In a squeeze event, a sharp swing in price causes mass liquidations, which in turn fuels further price movement. This then triggers a cascade of further liquidations.
Since the last such event involved long positions, it would be called a long squeeze. In general, an event of this type is more likely to affect the side of the derivatives market that is more dominant. Since this balance of power has now shifted towards short positions, it is possible that the market could instead see a short squeeze in the near future.
Of course, it is not necessary for a short squeeze to occur, but if the price ends up witnessing some volatility, it is possible that it will end up punishing the market for heavy selling.
BTC Price
Bitcoin has been steadily recovering from the dip as its price has climbed back to $57,500.