Bitcoin funding rates have been declining over the past few weeks. These funding rates have refused to break out of negative territory even though the price of the digital asset had fallen, leading some to call it a ‘discount’. Last week proved no different, given that funding rates have moved out of completely neutral territory and remain low.
Funding rates refuse to budget
Coming out of the past week has been tough for the crypto market. The bloodbath sent most coins in the crypto market into the red and bitcoin touched the $20,000 level for the first time since December 2020. This has caused panic among investors and funding rates reflect this panic.
Related Reading | Exchange inflow ramps up for crypto investors to exit the market
Last week closed with funding rates sitting well below neutral. This follows the trend of a 7-day period, where each day the funding rate was operating below neutral. Till Tuesday it was at 0.013%. Not the lowest point ever, but it is the second lowest point for the month of June.
This drop in funding rates is referred to by Arcane Research as a systematic sell-off in derivatives markets. It should come as no surprise that liquidation volume rocked the markets on Monday and Tuesday, touching more than $1 billion in a 24-hour period and setting a new daily liquidation event record.
Funding rates remain low | Source: Arcane Research
The research and analysis firm also notes that investors are approaching the market with caution. This is due to “an increase in Celsius-related contagion risks due to the current market structure and the pressured macro background”. This caution comes as no surprise as investor sentiment now resides in extreme fear, meaning there is no room for reckless sacrifice in such a market.
bitcoin open interest turns the other way
Despite the lower funding rate, other metrics surprisingly aren’t doing as bad. One of these is bitcoin’s open interest in perpetual markets. This metric remains high even though the price of bitcoin has dropped near its 2017 highs.
Historically, BTC-denominated open interest has been known to drop in line with the market. This is not the case with the recent bitcoin crash. Instead of falling, even as the sell-off continued, open interest had hit several new all-time highs. This suggests that some investors believed the bottom was up and tried to take advantage of it. But this was not the case.
Open interest on the rise | Source: Arcane Research
Nevertheless, as of Tuesday, Perpetual had an open interest of 298,500 BTC. This is in stark contrast to the previous major market crash that occurred in December, where open interest in purses dropped to 190,000 BTC as the price of the digital asset fell.
Related Reading | Bitcoin Crash Sends Institutional Investors Running for the Hills
This increase in open interest suggests that if the bitcoin bottom is not already there, it could be reached very soon. However it is important to note that such a metric by itself may not give a complete picture of when bitcoin will hit the bottom.
BTC drops to $21,000 | Source: BTCUSD on TradingView.com
Featured image from Arabian Business, charts from Arcane Reseach and TradingView.com
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