Bitcoin Funding Rates Remain Negative But Open Interest Tells Another Story


Bitcoin funding rates have fallen over the past two weeks. Even as the price of the digital asset has fallen, leading some to call it a “discount,” these funding rates have refused to break out of negative territory. Last week proved to be no different given that funding rates have exited completely neutral territory and are still low.

Funding rates reject the budget

The exit from last week has been tough for the crypto market. The bloodbath sent the majority of coins in the cryptocurrency market into the red, and Bitcoin touched the $20,000 level for the first time since December 2020. Through this, panic reigned among investors and funding rates reflected that panic.

Related reading | Stock exchange flows escalate as cryptocurrency investors are called to exit the market

Last week came to a close as funding rates were well below neutral. It follows this trend for a 7-day period as the funding rate has been trending below neutral every day. It settled at 0.013% as of Tuesday. It is not the lowest point yet but it is the second lowest point for the month of June.

This drop in funding rates follows what Arcane Research refers to as an orderly sell-off in the derivatives markets. Not surprising given the liquidation volumes that rocked the market on Monday and Tuesday, touching more than $1 billion in a 24-hour period and setting a new record for daily liquidation.

bitcoin finance rates

Funding rates remain low | Source: Arcane Research

The research and analysis firm also notes that investors approach the market with caution. This is due to the “current market structure with increased percentage-related infection risk and aggregate pressure background”. This warning was not surprising given that investor sentiment is now in deep fear, which means there is no room for neglect in a market like this.

Bitcoin open interest is shifting in the other direction

Even with lower funding rates, surprisingly, other metrics don’t perform that badly. One such factor is the open interest in bitcoin in perpetual markets. This metric remains high even though the price of bitcoin has fallen near its 2017 highs.

Historically, open interest denominated in Bitcoin has been known to decline in line with the market. This was not the case with the latest bitcoin crash. Instead of declining, open interest reached multiple new all-time highs even as the sell-off continued. This indicates that some investors believed the bottom was inside and tried to capitalize on it. But this was not the case.

Bitcoin open interest

Open interest on the rise | Source: Arcane Research

However, open interest on hold was at 298,500 BTC as of Tuesday. It is in stark contrast to the last major market crash that occurred in December, which saw open interest in Perps drop to 190,000 BTC as the price of the digital asset plummeted.

Related reading | Bitcoin crash sends institutional investors running for the hills

This surge in open interest suggests that if the bottom of Bitcoin is not already there, it may be reached soon. Although it is important to keep in mind that a metric like this alone cannot give a complete picture of when Bitcoin bottomed.

Bitcoin price chart from TradingView.com

BTC drops to $21,000 | Source: BTCUSD on TradingView.com
Featured image from Arabian Business, charts from Arcane Reseach and TradingView.com

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