Bitcoin Futures Funding Rates Show Traders Are Still Bullish Despite Rout
Despite the recent downturn in the market, Bitcoin and Ethereum funding rates on perpetual futures contracts are still showing positive signs, according to new data from CoinGlass.
What are Funding Rates?
Funding rates are the payments made between traders who have optimistic (long) and pessimistic (short) positions in perpetual futures contracts. Unlike standard futures contracts, which have a set expiration date, perpetual contracts continue indefinitely. Funding ensures that the price of a perpetual futures contract stays close to the actual price of the underlying asset.
When the funding rates are positive, as they are now, long traders (those betting on the price to rise) pay a fee to short traders (those betting on the price to fall) to keep their positions open. On Tuesday morning, Bitcoin's open interest-weighted funding rates were at 0.0024%, as noted by CoinGlass.
Why is it Bullish?
A positive funding rate suggests that more traders are opening long positions (betting that prices will rise) compared to short positions. This indicates that the current market sentiment among Bitcoin traders is somewhat optimistic. It also implies that traders who are maintaining long positions believe their gains will eventually offset the costs of funding.
Market Analysis and Trends
Philip Swift, founder of the analytics platform Look Into Bitcoin, pointed out that the recent drop in BTC price brought it down to its 128-day moving average. This metric became popular during the 2017 bull run, when the Bitcoin price often bounced back up after hitting this line. Swift suggests that the 128DMA "typically, but not always, acts as good support in Bitcoin bull markets."
Currently, Bitcoin is trading at just over $65,000 after dropping to $64,548.57, its lowest level in the past month.
External Market Influences
There are cautiously optimistic signs outside the crypto markets as well. The algorithmic crypto trading firm Wintermute noted that changes might be happening at the Federal Reserve, which sets interest rates in the U.S.
Historically, lower interest rates on government bonds encourage traders to invest in riskier assets like stocks and cryptocurrencies. The recent market drop occurred after remarks from Minneapolis Federal Reserve President Neel Kashkari suggested that the Fed might not cut rates until December. Investors had previously hoped for a rate cut in September.
But Wintermute speculates that the Fed might follow the lead of other major central banks. "Current bearish sentiment may be short-lived as global central banks, like the Bank of Canada and the European Central Bank, have already initiated rate cuts, suggesting a global shift towards monetary easing," the firm wrote.
Conclusion
Overall, despite the recent market downturn, the funding rates and other indicators suggest that traders remain cautiously bullish on Bitcoin and Ethereum. The evolving monetary policies by major central banks could also provide a supportive backdrop for these cryptos. Keep an eye on these trends to make informed decisions.
