Bitcoin financing (BTC) has fallen to levels not seen since September 2020, when the bitcoin price fell below $ 52,000 on April 18, trader and analyst Lex Moskovsky says this shows fear has returned to the market.
According to Glassnode data, the average percentage of funding for bitcoin futures on all exchanges fell to around -0.03% on Sunday.
What is the degree of funding and why is it important?
Bitcoin futures exchanges use a mechanism called funding to balance the market.
The principle of the mechanism is simple: if there are several lengths or buyers in the market, the financing rate increases, and vice versa.
Thus, when the funding rate turns negative, it means that most of the market is selling bitcoin, indicating fear in the market.
“Wow, we haven’t seen funding for this negative for a long time. Scared.”
Permanent Funding Rate for Bitcoin Futures. Source: Glassnode
Earlier this week, Bitcoin hovered around $ 64,000 in anticipation of a Coinbase IPO. At its lowest level on April 18, BTC was down to $ 50,000.
Since today, the Bitcoin price has decreased approximately 15% against the US dollar.
Market sentiment can change very quickly because many traders have significant influence over the major stock markets.
During the Coinbase IPO week, the bitcoin funding rate was stable between 0.1% and 0.15% on the leading futures exchanges such as Binance and Bybit.
This indicates that many traders wanted or bought bitcoin aggressively, making the futures market incredibly hectic.
When this happens, the incentive to sell bitcoin short-term increases dramatically, and this puts the market at risk of a large series of liquidations.
15-minute BTC / USDT price chart (Binance). Source: Tradingview
Will Bitcoin Recover Soon?
In the past 48 hours, rumors have been circulating that a sharp drop in the bitcoin blockchain hash rate has caused prices to drop.
On April 16, China’s Xinjiang region experienced power cuts in large Chinese mines and swimming pools.
Consequently, Bitcoin’s fragmentation rate decreased rapidly after that, raising concerns that it might hamper market sentiment towards Bitcoin.
However, Adam Cochran, a partner at Cinneanhaim Ventures, said the lower bitcoin’s fragmentation may not have driven the price of BTC down. He said:
“The idea that last night’s blackout at a mine in China caused $ BTC to drop is nonsense, just like the false correlation graphs above. But even worse, when you run the math * no contact * if someone is confident in the link and has Enough data to draw, ask him for receipts. If they don’t know how to do a regression test, they don’t really know if it’s related or not. ”
If the decline in Bitcoin prices was not driven by fundamentals, but was technically a result of a crowded futures market, the rapid recovery case is reinforced.
In the short term, it pays for Bitcoin to remain in support territory at around $ 56,000 as the futures market cools and funding rates stabilize.