Data shows that bitcoin funding rates on exchanges have turned negative, a sign that shorts have now become the dominant force in the market.
bitcoin funding rates have turned negative after the market crash
As noted by one analyst in a CryptoQuant Quicktake mailbitcoin funding rates have seen a marked decline recently. The “funding rate” refers to a metric that records the periodic fee that derivative contract holders currently exchange with each other.
When the value of this indicator is positive, it means that long-term investors are paying a premium to short-term investors to hold their positions. This trend implies that the majority of the sector shares a bullish sentiment.
On the other hand, the fact that the metric is negative implies that a bearish mindset could be dominant in the market, as short position holders outnumber long position holders.
Now, here is a chart showing the trend in this bitcoin indicator for all exchanges over the past few months:
<img src="https://technicalterrence.com/wp-content/uploads/2024/08/Bitcoin-funding-rates-turn-negative-is-it-the-shorts-turn.png" alt="bitcoin Funding Rates” />
As shown in the chart above, the bitcoin funding rate had been positive throughout 2024, barring a couple of minor dips into the negative region, until this latest drop, which eventually drove the indicator into noticeable red values.
The positive values above were naturally due to the fact that the market had a bullish mood, so the average investor was trying to bet that the price would go up. On the chart, you can see that this positive sentiment was strongest during the rally to the all-time high (ATH) price, driven by demand for spot exchange-traded funds (ETFs).
During the consolidation period that followed this rally, btc had seen a couple of notable drops, but they were not enough to shake off the bullish mood. However, the recent sharp drop seems to have finally made investors have a bearish outlook on the cryptocurrency.
The bitcoin crash had triggered a massive amount of liquidation of long positions in the market, which triggered what is known as a “squeeze.” In a “squeeze” event, a sharp swing in price causes massive liquidations, which in turn drives the price movement even further. This then triggers a cascade of more liquidations.
Since the last such event affected long-term buyers, it would be referred to as a long squeeze. Generally, such an event is more likely to affect the side of the derivatives market that is more dominant. As this balance of power has now shifted towards short-term sellers, it is possible that the market could experience a short squeeze in the near future.
Of course, a short squeeze is not necessarily the case, but if the price does experience some volatility, it may end up punishing the market with a lot of shorts.
btc Price
bitcoin has been steadily recovering from the crash and its price has climbed back to $57,500.
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