Categories: Bitcoin

Data shows that the Bitcoin derivatives market is less crowded

The funding rate for Bitcoin futures contracts has decreased in the past 48 hours on major crypto exchanges. This shows that the futures market is cooling and the upward trend could become more sustainable.

Bitcoin 1 hour price chart | Source: TradingView

What is the funding rate for futures and why does it affect the Bitcoin price so much?

The Bitcoin futures market uses a mechanism known as “funding”. In essence, the funding achieves a balance in the market by offsetting the holders of minority positions.

For example, if there are more buyers or long contract holders in the market, buyers will have to pay the short for part of their position.

Suppose a trader has an open long position of $ 100,000 on Bitcoin and the funding rate is 0.01%. This means that every 8 hours 0.01% of the nominal position size, in this case 100,000 USD, is paid out to the short.

When the funding rates are extremely high, it means that the market is mainly driven by buyers. This increases the likelihood of a long squeeze, which could force buyers to sell their positions if Bitcoin’s price falls.

When Bitcoin hovers around $ 18,800, Bitcoin’s funding rate on the major exchanges is 0.1% to 0.2%. When you consider that Bitcoin’s average funding rate is around 0.01%, this is 10 to 20 times higher than usual.

Since then, Bitcoin’s funding rate has fallen. Some analysts attribute it to institutions using the Time Average Price (TWAP) algorithm. Others believe that the strong short-term pullback that Bitcoin has experienced allows the futures market to pull back.

Either way, the subsidy rates are starting to drop. Bityard and Binance Futures both have a funding rate of less than 0.05% as of November 25, 2020. This is still relatively high compared to the previous funding rate for Bitcoin futures, but has changed significantly.

Traders predict bumpy and volatile road

Sam Trabucco, a quantitative crypto trader at Alameda Research, warning Bitcoin price trend is likely to be volatile in the near future.

“Whatever this ride looks like, I think we can rely on one thing: It will be bumpy. (OK, maybe we can count on the second: liquidation will be involved). “

Bitcoin’s funding rates are higher than usual, there is significant interest in Bitcoin and the futures exchanges are opening interest near record highs.

Bitcoin is also heading for an all-time high of around $ 20,000, making it a critical level of resistance.

Sellers may be interested in actively protecting $ 20,000 from a breakout, which could result in extreme volatility.

For example, Bitcoin topped $ 18,500 on November 25, and then quickly fell again. Trabucco explains: The highly volatile price movements come from heavily leveraged trades:

“You see, quick buys have really increased, as you can expect for something so powerful and quick. Once there is a sudden payout, the ‘apes’ have borrowed. Large debts are penalized.” Dealer said.

Teacher

According to Cryptoslate

Follow the Youtube Channel | Subscribe to telegram channel | Follow the Facebook page

CoinX

Recent Posts

Sui Foundation Enters into Strategic Partnership with Franklin Templeton Digital Assets

Grand Cayman, Cayman Islands, 22nd November 2024, Chainwire

31 seconds ago

Best Cryptos to Invest in December 2024: Qubetics Surges Past $2.6M as Solana Records Big Whale Pump and Polkadot Aims for $6

Best Cryptos to Invest in December 2024: Qubetics surges past $2.6M, Solana’s whale pump ignites…

1 hour ago

Bitcoin Trader Turned $100M in His 20s—Now Reveals 5 Altcoins to Build a $50M Portfolio, With Memecoins Leading the Way!

As Bitcoin reaches unprecedented heights and the market surges, he's highlighting five altcoins poised for…

3 hours ago

Which Crypto Will Explode in the 2024-2025 Bull Run?

With the crypto market reaching new peaks, many are eager to discover digital currencies poised…

3 hours ago

Dogecoin and Shiba Inu Approach $1, but All Eyes Are on XYZVerse’s Push to $10!

XYZVerse, blending sports passion with meme energy, is set to make a significant impact, uniting…

3 hours ago

Will Bitcoin Crash or Soar Past $105K in 2024?

Will Bitcoin Crash?" seems to be one of the most controversial questions, as the price…

4 hours ago

This website uses cookies.