Bitcoin price exceeded its full value this Christmas, reaching $ 24,681 on Binance. After the strong rally in Bitcoin, traders and analysts are looking into both bearish and bullish issues in the short term.
Market sentiment about Bitcoin remains very positive, but there are some concerns that analysts are voicing for the foreseeable future, and as a result the next step is unclear.
Bitcoin futures financing rate
Bitcoin (BTC) raised over $ 24,600 with a relatively short squeeze. In the past four hours, only $ 95 million was signed in short contracts, indicating that this rally was not driven by short-term pressure. Short squeeze occurs when many short contracts or sell orders are settled in the futures market. This occurs when sell orders are over-leveraged, which means that traders are selling heavily leveraged Bitcoins.
Since the rally was not due to short-term pressure, buyers and holders of long-term contracts dominated the futures market. This trend pushed the ratio of funding on the major bitcoin futures exchanges to 0.1%. Degree of funding is a mechanism that futures exchanges use to incentivize holders of long or short stocks based on market sentiment. If there are multiple long-term contracts, the funding rate will be positive, which means that the buyers should motivate the sellers.
The average funding rate for Bitcoin futures on most exchanges is 0.01%. When the funding rate is 0.01%, the trader must pay 0.01% of his position as an incentive to the Card Traders who are in the minority in the market. But with the high funding rate and bitcoin traders having to pay hefty fees, this becomes less urgent for long bitcoins.
Currently, as of December 25, the Bitcoin futures funding rate is hovering around 0.1%. As such, traders and strategists say Bitcoin is at risk of falling back as it becomes less convincing for long BTCs, at least in the short term. Mohit Sarout, Co-founder of Bitazu Capital, pointed to the extremely high funding ratio for Bitcoin to indicate that a redemption is possible: “I would be completely surprised if Bitcoin continues to rise.”
Cryptocurrency derivatives trader Edward Moura shares a similar opinion. He added that many traders in the futures market began to crave or buy bitcoin after it reached the $ 24,400 mark. After the fall, the funding rate is expected to be reset following the local adjustment. Mora tweeted: “The derivative traders didn’t buy on the dip, but instead returned to bullish Omega sentiment at the top, which is a classic. Now Spotched will reset it, direct premiums and financing to baseline, and continue operating after a local correction.”
However, some traders disagree that the future funding rate is of prime importance during a strong bullish wave. Salsa Tequila, Bitcoin trader under a pseudonym, indicated that the level of BTC financing in the beef market in 2017 was 0.375%. Given that the rate is much higher, but undoubtedly at an early stage of the rally, the trader said that the funding rate itself may not have been accurate in predicting the peak:
“ATH shutting down during price hikes on a non-funding basis only, while hope for a Wyckoff peak seems pretty silly to me. Funding was 0.375 (max.) For a few weeks of beef development in 2017.”
Given the previous historical Bitcoin price cycle, traders are more cautious about expecting a short-term peak. This leads to a bullish case for BTC for the foreseeable future, which is based on the theory that historical trends cannot be replicated during a bull market.
Short-term bitcoin nonsense
The short-term nonsense on Bitcoin relies on two main factors: institutional buildup and altcoin profit that converts to Bitcoin. Both trends continue as grayscale flow continues to increase and altcoins lag behind BTC.
Ki Yong Joo, CEO of CryptoQuant, said he expects to fix Bitcoin as institutional purchases decline. But until that happens, as we’ve seen in the Grayscale assets under management and CME futures data, Joo said he would remain optimistic: “When institutional buying stops, the price will likely drop sharply. The new ATH will be decided by institutional investors when they stop. Buying $ BTC. Until then, I will remain optimistic. ”