The on-chain data shows that Bitcoin’s funding rate is still at a relatively high positive value, suggesting that the crypto may see a bigger decline in the near term.
Bitcoin’s funding rate has been at a positive value for the past few days
As one analyst pointed out in a CryptoQuant Publishthe current funding rate suggests that the price is currently experiencing further decline.
There “financing rateis an indicator that measures the periodic fees Bitcoin futures traders have to pay each other.
When the value of this metric is greater than zero, it means that long traders are currently paying a premium to short traders to hold their positions. Such values indicate that a bullish sentiment is more dominant in the market right now.
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On the other hand, negative values of the indicator imply that the majority sentiment is bearish at the moment, as the shorts are currently paying for the longs.
Now, here is a graph that shows the trend of Bitcoin funding rates over the past six months:
The value of the metric seems to have been positive in the past week | Source: CryptoQuant
As you can see in the chart above, whenever Bitcoin’s funding rate has reached a relatively high positive value over the past few months, the price of the crypto has typically seen a decline shortly thereafter. Similarly, negative spikes led to some upward trend in the value of BTC.
Here’s what’s happening here: high positive values mean that long positions are building up in the market. So a big enough and sudden drop can liquidate a lot of them, which can end up driving the price down further, and therefore liquidating even more long positions. Such an event where liquidations follow one another is called a “squeeze” (or in this case, a long press).
A few days ago, when the price of the crypto was above $23,000, the funding rate once again reached a positive peak and the price then fell. However, the current value of the indicator still looks quite positive, which may mean that the decline is still ongoing.
At the time of writing, The price of bitcoin is floating around $22,700, up 6% in the past seven days. Over the past month, the crypto has gained 8% in value.
The chart below shows the price trend of the coin over the past five days.
Looks like the value of the crypto has been sliding down over the last few days | Source: BTCUSD on TradingView
Featured image from Brent Jones on Unsplash.com, charts from TradingView.com, CryptoQuant.com