Bitcoin (BTC) continues to climb to new heights, crossing $ 35,000 on Wednesday, as US Coinbase buyers raised the price even further. But the level of financing for the BTC futures market is also growing along with the open interest in futures contracts.
The combination of high funding rates, whale sales in Asia and a record of high open interest in the futures market increases the chances of a correction in the short term.
Daily candlestick chart BTC / USDT (Binance). Source: TradingView.com
What is likely to be a correction or a continuation of Bitcoin’s rally?
Currently, as Andrew Kang of Mechanism Capital has pointed out, the open public interest in the Bitcoin futures market is at a whole new level. He said:
“Total open interest in futures / bitcoin swaps has grown to $ 11 billion. Traders are currently paying more than $ 5 billion a year for the privilege of growing corn.”
The problem is that the market is overburdened with loan money and is very hungry for bitcoin. The term “buy long” refers to buying BTC with capital borrowed from the derivatives market.
Bitcoin financing rate in the futures market exceeded 0.15%. On average, the BTC financing rate fluctuates around 0.01%, which is 15 times the normal interest rate.
Funding is the mechanism that futures exchanges use to find equilibrium in the market. Holders of long or short contracts must pay each other a commission every eight hours. Buyers pay short trades if the market is long and vice versa.
If financing fees exceed 0.15%, this means that the market is very overheated and the majority of the market is hungry for Bitcoin.
This trend increases the likelihood of long-term pressure, as long-term currency holders will have to adjust their positions if the bitcoin price falls.
If the open market interest is at a high level, the chances of greater long-term stress are greater.
Whales in the Asian market also sold large amounts of Bitcoin in the past week. CryptoQuant data shows huge flows from BTC to Bithumb, the largest exchange in South Korea.
However, there are still many positive factors emerging, including fragmentation. According to analysts at IntoTheBlock, the bitcoin hash rate is near its full-time high. They said:
“Bitcoin continues to set new highs and crosses $ 35,700 for the first time on January 5. BTC has risen 74.9% since the end of the last day on December 16. As the price continues to rise, the hash is also increasing. Records.”
See Coinbase Churn
In the short term, Coinbase Flow is the most important account to watch out for in gauge short-term sentiment around Bitcoin.
Coin base turmoil often signals institutional buy orders as investors and institutions with high net worth choose to keep their assets away from central platforms. Ki Yong Joo, CEO of CryptoQuant said:
“FYI, Coinbase was at an all-time high on January 2nd. It looks like institutions bought BTC dollars for over $ 30,000. The BTC beef market isn’t over yet.”
If Coinbase volatility and premium remain high, the likelihood of a significant correction in the foreseeable future will decrease.