Negative Funding Rate Could See Bitcoin Rally Continue.
Despite the massive surge in Bitcoin (BTC) price that has seen the asset class surge 15.5% in the last seven days, several futures traders are expecting a dip of the largest cryptocurrency by market capitalization in the coming days.
According to data shared by Santiment Feed, the average Bitcoin futures funding rate across all exchanges is dropping below negative, indicating that traders are expecting a dip soon.
Based on traders’ expectations, many future traders have proceeded to open short positions for Bitcoin across major exchanges in anticipation that the cryptocurrency’s rally will be ending soon.
In contrast to this sentiment toward the popular cryptocurrency, Santiment Feed noted that the negative average Bitcoin futures funding rate could be a good sign for BTC, as these short positions can liquidate at any moment, thus causing value of the asset class to surge further.
“Generally, these #shorts can liquidate & cause prices to surge higher,” Santiment Feed tweeted in the early hours of today.
Funding Rate Implications on BTC
For clarity, in a bid to achieve balance in the market, Bitcoin futures exchanges use a mechanism referred to as “funding.”
The way the funding mechanism works is that when there are many open long positions across exchanges, the funding rate will be on the increase, but when there are more shorts, the rate decreases.
Earlier last week, Bitcoin was trading around $35,000 as the entire crypto market suffered a massive dip that saw billions of dollars wiped off from the market.
Fast forward to this week, Bitcoin has regained support above $40,000 and subsequently rose over $44,000 amid news of Canada-based KPMG Limited Liability Partnership adding BTC and Ethereum to its corporate balance sheet.
Several Bitcoin analysts believe that KPMG’s interests in the two-largest cryptocurrencies is among the contributing factors that saw their prices soar above $44,000 and $3,190, respectively, in the last 12 hours.
Other contributing factors include leading projects picking interest in meme coins, Play-to-Earn (P2E) games, and privacy, Wu Blockchain stated.
Meanwhile, BTC’s latest rally saw President Nayib Bukele throw a subtle shade at Peter Schiff for previously condemning El Salvador’s decision to buy more bitcoin.
Bloomberg Intelligence: Crypto Outlook
A technical report by Bloomberg Intelligence released on Sunday, also gives a positive outlook for Bitcoin and Ethereum.
“Bitcoin is more likely forming a floor than a ceiling, which means range traders accustomed to $30,000-$60,000 may be disappointed”, reads the text, regarding the recent rise in the price of the cryptocurrency. “Since the start of 2021, the more tactically oriented had opportunities near the lower end twice and to sell for double around the upper end.”
The document, “Bloomberg Intelligence: Crypto Outlook“, that massive early adoption and limited supply are important catalysts for Bitcoin growth, further stating that “massive adoption can be unstoppable”: “By the rules of economics, a market with rising demand and declining supply will go up over time, suggesting that Bitcoin may be forming a bottom again around $30,000 as $60,000 resistance ages.”
Signed by Mike McGlone, Andrew Silverman, and Nathan Dean, the report says short bitcoin investors waiting for a return to the $30K range are likely to be disappointed, while resistance at $60K appears to have less strength than in November 2021.
The document also deepens the analysis on Ethereum, also with optimism about its price — the report calls the asset “a foundation for revolutionary technologies such as non-fungible tokens [NFTs] and crypto dollars (stable coins)”: “Growing demand versus declining supply dynamics are similar as BTC, with upward price inferences. Bullish fundamentals are intact and technical guidance has been straightforward.”
For Ethereum Bloomberg says:
“Ethereum’s fundamentals are similar, with straightforward technical guidance and buyers prevailing at about $2,000 and sellers around $4,000.”
However, in the case of the second-largest cryptocurrency in the world, there is the possibility of a further drop to a more consistent high: “Ethereum could repeat last summer and revisit about $1,700. Once the weaker leveraged long positions were purged, the resolution was a new high around $4,800 in November. Ethereum approaching the lower end of its range has greater risks for shorts than longs.”
