The data shows that the bitcoin funding rate has recently risen to a relatively high positive value, something that could lead to a prolonged squeeze in the market.
Bitcoin funding rate turns positive as open interest rises
As pointed out by an analyst in a Cryptoquant post, the BTC funding rate has a positive value at the moment.
“Open Interest” is an indicator that measures the total amount of positions currently open in the bitcoin futures market.
When the value of this metric is high, it means that there is a significant amount of leverage involved in the market right now. Additional leverage usually makes the price of crypto more volatile.
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On the other hand, lower open interest values may result in lower volatility in the BTC market as the futures market does not involve much leverage.
Now, here is a chart that shows the trend in Open Interest over the past week:
Looks like the metric's value has increased recently | Source: CryptoQuant
As you can see in the graph above, bitcoin has seen an increase in open interest in recent days. This could mean that crypto may face higher volatility in the coming days.
Another indicator, the “funding rate”, measures the periodic fee that traders on derivatives exchanges pay each other to hold their positions. This metric tells us how open interest is split between long and short traders at the moment.
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The chart below shows how the value of this indicator has changed over the past seven days.
The value of the indicator seems to have been green recently | Source: CryptoQuant
From the graph, it is clear that the bitcoin funding rate currently has a relatively high positive value. This means that there are more people present in the market right now.
As long traders are paying a premium to hold their positions (which is why the rate is positive), the overall market sentiment is turning bullish.
However, with higher open interest values, it is possible that any large swing in price is called a “long squeeze”, a phenomenon where large-scale liquidations of long positions cascade together and push the price further down. Huh.
btc price
At the time of writing, bitcoin was priced around $20.9k, down 2% over the past week. In the past month, the crypto has lost 5% in value.
The price of BTC has climbed up over the past couple of days | Source: BTCUSD on TradingView
Featured image from Aleksi Räisä on Unsplash.com, charts from TradingView.com, CryptoQuant.com