Bitcoin funding rates had a very negative month between mid-June and mid-July. Funding rates, which had previously remained subdued, quickly fell below neutral and continued to spend the following month at that level. However, there is a significant shift as last week funding rates returned to neutral.
Funding rate recovers on exchanges
Bitcoin funding rates had bottomed out as the price of the digital asset struggled. This was concerning given that funding rates were expected to improve as the digital asset began trading essentially at what was described as a “reduction”. That couldn’t be further from the truth, as funding rates fell to their lowest points in June. He indicated that perp traders were still bearish on cryptocurrency and refrained from moving in.
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Last week would come with good news as funding rates returned to neutral and stayed there. Crypto exchanges Binance and Bybit both recorded funding rate levels of 0.01%. The return to neutral came as bitcoin price began a relief rally that saw it break above $23,000.
Funding rates return to neutral | Source: Arcane Research
Open interest had also followed the same route, although it pulled back during the week when the price fell again. This showed that there was still plenty of leverage in the market as bitcoin’s open interest was not much different from what was seen the previous week, even with the decline.
Bitcoin Traders Go Bullish
The restoration of bitcoin funding rates to a neutral level is a testament to the positive sentiment returning among traders and investors. This certainly does not mean that the market has returned to its earlier bullish phase, but it does indicate that investors are now looking favorably on the bitcoin and crypto market as a whole.
BTC retraces downwards | Source: BTCUSD on TradingView.com
It follows with the Fear & Greed index which has now broken out of “Extreme Fear” territory for the first time in nearly three months. He saw an incredible rebound from last week’s sentiment, with a score of 18 putting him in extreme fear. Although the market is still apprehensive, the rally sees confidence returning to the market. This can also be seen in the buying pressure that has been building up this week.
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The correlation of funding rates with the price of bitcoin can be good or bad going forward, depending on how the cryptocurrency performs in the market. If it continues its recovery trend, funding rates could move back above neutral for the first time in more than two months.
Featured image from CNBC, charts from Arcane Research and TradingView.com
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