The data shows that Bitcoin Funding Rates have recently turned negative on the exchanges, suggesting that betting is currently dominant.
Aggregate Bitcoin funding rates have dropped
As analyst firm Santiment noted in a recent post on X, Bitcoin’s aggregate funding rates are currently showing a significant short bias. “Funding rate” here refers to an indicator that maintains the amount of periodic payments that derivatives market traders exchange among themselves on a centralized exchange.
When the value of this metric is positive, it means that the holders of long contracts reward the holders of short contracts for maintaining their position. Such a trend could be a sign that bullish sentiment dominates the platform. On the other hand, an indicator below the zero mark means that the bearish mindset can be maintained by the majority of traders, as shorts are outnumbered by longs.
Now, here’s a chart shared by Santiment that shows the trend in the Aggregate Bitcoin Funding Rates across all exchanges:
As shown in the chart above, Bitcoin funding rates on exchanges have recently witnessed significant negative growth as demand for short positions has increased. The analyst firm noted that “traders are clearly worried about the escalation of the war, as well as expressing dissatisfaction with the lack of progress on the Enlightenment Act.”
The rise of bearish sentiment may not actually be bad for cryptocurrency, but, if history is anything to go by, asset prices often go against the grain of the crowd.
In relation to the derivatives market, this opposite effect can occur due to the reversal to the opposite type of price movement. “Historically, extreme shorting increases the likelihood of cryptocurrencies being liquidated due to potential short liquidation whenever prices break through resistance levels,” Sentiment said.
While either side of the market can fall prey to liquidation depending on random volatility, the side that dominates is usually the one that has the most impact on the mass cascade. For Bitcoin, that side is currently short. It remains to be seen how the assets will fare in the coming days given the bearish sentiment.
BTC price
The effects of negative funding rates may already be in motion as the asset saw a rally above the $70,000 level during the previous day.
The upward move resulted in a short liquidation of more than $100 million, as suggested by the CoinGlass heat map.
