Is Bitcoin’s negative futures funding rate a sign of an upcoming BTC price crash?

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On April 18th, there was a large number of requests to sell Bitcoin futures contracts instead of buy on the 18th of April. This increase in demand for short positions raised concerns about potential further declines in Bitcoin’s price. Factors fueling this trend included a decrease in investments into Bitcoin spot exchange-traded funds and the prediction that U.S. interest rates would climb, creating a pessimistic outlook for the market.

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Bitcoin funding rate flips bearish after 6 months

In simpler terms, retail investors frequently choose perpetual futures – a form of financial contract replicating the price swings of normal stock markets. Exchanges apply a recurring charge, called the funding rate, every eight hours to ensure an even distribution of risk among traders.

When the demand for borrowing is greater among buyers (longs), the funding rate becomes positive. On the other hand, when sellers (shorts) require more funds to cover their positions, the funding rate turns negative. Normally, a funding rate of 0.025 per 8-hour interval or approximately 0.5% weekly is considered neutral. However, negative funding rates, which occur rarely, are viewed as strong signals of bearish market sentiment.

On April 15 and 18, the BTC funding rate experienced a notable change to negative, reaching its lowest point in over six months. This shift suggests that investors have become less eager to hold long positions in Bitcoin. Such a change in market sentiment often becomes apparent following large price swings, as demonstrated by the 13.5% drop in Bitcoin’s value between April 12 and 18.

In simpler terms, market conditions frequently demonstrate more significant effects when pessimism among investors grows particularly strong. A case in point is the interpretation by certain analysts of the $72,000 double-top chart pattern as an indication that the downward trend may continue until June.

Looking at the bigger economic picture, the surprising increase in U.S. inflation to 3.8% annually in March and a solid 0.7% rise in retail sales year-over-year has made investors less hesitant about taking risks. The Consumer Price Index surpassed the Federal Reserve’s 2% target, while retail sales continued their upward trend.

In simpler terms, when the economy is doing well and growing strongly, the Federal Reserve is less likely to decrease interest rates. This situation benefits fixed-income investments because higher interest rates lead to better returns. Additionally, according to Reuters, a robust labor market enables consumers to keep spending even if there are financial pressures among some lower-income families.

Bitcoin spot ETFs flows dictate the market sentiment

On April 17th, Farside Investors noted a net withdrawal of $165 million from Bitcoin spot ETFs, which represents the fourth consecutive day of such withdrawals. In contrast, during the early days of April, these ETFs experienced an inflow of approximately $484 million, even as funds were being withdrawn from the Grayscale GBTC trust.

Based on the information provided,

The unpredictable price swings have noticeably affected the confidence of Bitcoin investors, with many feeling the brunt since the cryptocurrency surged by 12.3% in March. Even though they correctly anticipated the price trend, the extreme price fluctuations led to significant margin deposit losses and compelled automatic sell-offs.

To gain a more profound perspective on market attitudes towards Bitcoin, consider examining the options market as well. An increasing interest in purchasing put (sell) options indicates that traders are leaning towards neutral-to-bearish outlooks on the price.

Over the last week, the interest for call (buying) Bitcoin options has outpaced put (selling) options by 35%. This signifies that there’s no clear indication of an upcoming price correction or worsening market trends in the Bitcoin futures and options market at this time. Instead, the data suggests that the recent dip below $60,000 on April 17 did not create a lasting bearish outlook.

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2024-04-19 01:18