Bear trap? Bitcoin funding rate turned negative

As the Bitcoin (BTC) price lost the $ 52,000 support on April 22, futures contracts’ funding rates turned negative. This is unusual and causes investors to pay fees every eight hours.

Even though the rate is low, it increases transactions through arbitrage tables and creates an environment for the sale of monthly contracts. While long-term leverage transactions are attractive, so does the likelihood of a “bear trap” occurring.

8-hour funding rate for BTC margin futures. Source: Bybt

The chart above shows that the negative funding rate is unusual and generally does not last long.

Monthly futures contracts better suited for long-term strategies

Unlike permanent contracts, monthly futures have no funding rate, so their prices are very different from spot exchanges. These fixed contracts are suitable for long-term strategies as they eliminate the volatility seen in funding rates.

Bitcoin 1-month premium for OKEx futures. Source: Skew

As shown in the chart above, the 1-month futures premium is dangerously high, ending probabilities for bullish strategies.

Futures buyers had to swiftly change their positions in anticipation of a rise above an all-time high at $ 64,900.

Low cost in bullish strategies could be a bear trap

Although it is not preferred to open a long position due to its 30 percent and higher cost, long-term transactions have become cheaper than call options due to the premium rate falling below 18 percent.

June 25 Bitcoin call option contracts. Source: Deribit

For example, it currently costs $ 4,362 to purchase an upward contract using a $ 60,000 call option on June 25. So the price must rise to $ 64,362 for the buyer to make a profit. Looking at the current price, there should be an increase of more than 20 percent in two months.

On the other hand, if the BTC price reaches $ 64,362, the person who opens a 5x leveraged long position can earn 120 percent. The person who acquired the $ 60,000 call option, on the other hand, must wait for the price to rise to $ 77,750 this time in order to make the same profit.

The opinions and comments expressed here are only to the author belongs. It may not reflect Cointelegraph’s views. Every investment and trading transaction involves risk. When making your decision, you should do your own research.

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