Bitcoin’s funding rate is the lowest in the last 7 months

Bitcoin’s (BTC) funding rate declined to levels not seen since September 2020 as the cryptocurrency fell below $ 52,000 on April 18. Expert investor and analyst Lex Moskovski said this indicates that fear is returning to the market.

According to Glassnode data, the average funding rate of Bitcoin futures on exchanges fell to -0.03 percent on Sunday.

What is the funding rate, why is it important to decrease?

Bitcoin futures exchanges use a mechanism called “funding” to maintain balance in the market.

The way the mechanism works is quite simple: When buyers and long positions are dominant in the market, the funding rate rises, and vice versa, it decreases.

Therefore, the negative funding rate shows that the majority of the market is short for Bitcoin and reveals the prevailing fear.

Moskovski, stated that:

“It’s been a long time since I have been relative to the funding rate so negative. Fear.”

The funding rate of Bitcoin continuous futures. Source: Glassnode

Bitcoin had risen to $ 64,000 before Coinbase was listed last week. Crypto money declined to $ 50 thousand on April 18.

Bitcoin lost almost 15 percent against the dollar from the highest point to the lowest point during the day.

Market sentiment can change quite rapidly, as most investors in major exchanges use high leverage.

When Coinbase was listed last Wednesday, Bitcoin’s funding rate on major futures exchanges such as Binance and Bybit hovered between 0.1 and 0.15 percent.

This indicates that many investors are heavily buying Bitcoin or taking long positions, so the futures market is getting too crowded.

In such a situation, the incentives paid to short positions increase considerably and expose the market to the danger of liquidations occurring one after another.

15-minute price chart of the BTC / USDT pair (Binance). Source: Tradingview

There were rumors that the drop in bitcoin price seen on Sunday was due to the hash rate drop in the Bitcoin blockchain network. Xinjiang region, which is home to a large number of miners in China, experienced a power outage for two days. Therefore, analysts thought it was a temporary drop.

Bitcoin and the crypto market in general have started the new week with a recovery. BTC has grown 4 percent in the past 24 hours to $ 57,400.

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