Bitcoin funding rate turns negative after the dump — Was it a bear trap?
Bitcoin, after reaching an all-time high on 14 April 2021, has plummeted nearly 26% in the following days. As a result, the funding rate is flipped negative. This situation benefits short-sellers who bet on the price to fall, to pay fees every eight hours.
However, this uncommon situation benefits the arbitrage desks and market makers the best. They create incentives by buying perpetual stocks and selling future monthly contracts simultaneously. As a result, the situation creates a perfect bear trap.
Future monthly contracts are always at a premium as everyone expects the market to go up in the case of bullish markets and even the neutral ones. This applies the same to all types of assets including equities and currencies.
However, the market of cryptocurrencies is extremely bullish and thus cryptocurrencies have experienced a whopping 60% annualized premium.
Now, unlike the perpetual contract, the month-to-month futures do not have an investment rate. As a result, their rate will hugely range from ordinary spot exchanges. These fixed-calendar contracts get rid of the fluctuation visible in investment quotes and serve as an effective tool for longer-time period strategies.
While maximum bullish strategies prohibit the price of 30% or better to open lengthy positions, as the ideal rate falls beneath 18%, it typically turns inexpensive to long futures than buy call options. So, the Bitcoin marketplace is very costly for bulls, specifically because of BTC’s excessive volatility. Thus, the investors have no reason to celebrate the 26% correction in Bitcoin prices.
