Shorts Now Paying the Longs; Funding Rates on BTC & ETH Perps Going Negative Across the Board
The cryptocurrency market continues to see red.
While the price of Bitcoin is back around $31,000, that has the market speculating another drop. While earlier this month, when BTC was rallying, the market wasn't expecting a deep pullback in the light of increased demand, now bearish remarks have some even calling for a dip under $20k
As for Ethereum, the crypto asset climbed to yet another ATH around $1,475 on Monday, but it is also falling, going to $1,260.
With these latest rounds of losses, the funding rates on the exchanges have turned negative for a few days now. Funding rates are to keep the price of the perpetual contracts close to the spot price of the underlying asset. When the funding rate is positive, longs pay the shorts, and when it runs negative, shorts pay longs.
Earlier this month, when Bitcoin and ETH were flying, the funding rates went as high as 1%. Now, with crypto assets in red, so are the funding rates, and after a long time, shorts are paying longs.
The funding rate on Bitcoin perpetual contracts are ranging from +0.01% on Binance to -0.05% on Bybit. On Ethereum, it is +0.01% on Binance to -0.12% on Bybit, as per Viewbase.
- Historically, the funding rate, which varies during the day, tends to correlate with market sentiment. When the market is strongly bullish, funding rates tend to be positive, and during strongly bearish, the rates go negative.
With Bitcoin perps basis negative since Monday, the funding rate has been either flat or negative, and the same is now happening with Ethereum; trader and economist Alex Kruger interprets it as a “bear trap” that could lead the prices of digital assets higher.
“Funding is either flat or negative. Perpetuals are trading below spot. The perp-spot basis has not been negative for this long since pre Nov elections, And the annualized quarterly basis has dropped from 25%-28% a week ago to 7-10% now. All sings of a healthy cool-down.”
For now, the digital assets lack momentum and continue to be in the red.