Funding Rates Fall To Yearly Lows Following Bitcoin’s Fall Below $29,000


Bitcoin has had a rough two weeks so far and the effects are still being felt across the board. This caused the price of Bitcoin to drop below $30,000 again. Besides this fall, some other harsh news about digital assets surfaced. One of these was the funding rates, where the massive dive showed increasing bearish momentum among the biggest traders.

Financing Rates Take the Diving

Bitcoin funding rates have been in a bit of a slump even as BTC price started to top the $40,000 level. Mostly, it has remained neutral or below neutral, so the sudden drop in funding rates is not surprising. However, the degree to which it decreased was even more worrying. This time, funding rates took a sharp decline that brought them to their yearly lows.

Related reading | How Pegging the Tether Can Predict Bitcoin’s Rising Volatility

Arcane Research reported that the decline came in the midst of the selling that rocked the market last week. This has seen funding rates drop across the major exchanges in the space. Most notably on May 12, when the funding price fell to -0.0042% on the largest exchange, Binance.

Central Bank of Tunisia financing rates

Funding rates decline to yearly lows | Source: Arcane Research

An interesting note is that funding rates, although trending in negative territory, have not been this low since July 2021. This means that this is the most significant drop that has been recorded in the market in a year.

Traders were already in a downtrend before now, which resulted in neutral funding rates that were recorded last week. However, this proves that the larger market is anticipating more downside trends and therefore they are taking steps to protect themselves.

Bitcoin long filtering is the trigger

After dropping below $30K, Bitcoin recorded one of the most brutal liquidation trends in recent memory. The liquidation reached $0.73 billion of bitcoins liquidated in one day, culminating in the highest liquidation event recorded since the December 4 crash.

Bitcoin price chart from TradingView.com

BTC price declines below $29,000 | Source: BTCUSD on TradingView.com

It is clear that future traders and traders have taken the brunt of this, and this in turn negatively affected the funding rates. Perpetual markets trading significantly below the spot market level after liquidation contributed significantly to the sharp drop in funding rates.

Related reading | Crypto Carnage Causes Escape to Bitcoin Safe Haven, Hegemony Explains

Funding rates began to recover after May 12. Briefly return to the neutral zone before dropping again. However, the rate of decline was not as deep as the previous fall.

Funding rates are still well below neutral at the time of the report, which means individual traders are still bearish in the market and, as such, are not putting much money into digital assets.

Featured image from Cryptocoin Spy, charts from Arcane Research and TradingView.com

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