Bitcoin (BTC) has not dropped below $90,000 since November 18 and continues to oscillate between $90,000 and $100,000.
Sentiment generally turns bullish when bitcoin approaches $100,000 and investors attempt to continue the bull market. However, it also works the other way and as Bitcoin heads towards $90,000, like on Thursday, investors are turning bearish.
Bitcoin will move to where the pain is maximum, this is for the moment the cutoff period between these two valuations.
Bitcoin derivatives play an important role in these volatile price fluctuations; Derivatives such as futures and options represent only a few percentage points of the overall market capitalization, but their influence is growing in the market.
One metric that traders watch closely is the futures perpetual funding rate. This is defined as the average funding rate (in %) set by the exchanges for perpetual futures contracts. When the rate is positive, long positions periodically reward short positions. Conversely, when the rate is negative, short positions periodically remunerate long positions.
During a bull market, bitcoin tends to have a positive funding rate because traders believe the price will continue to rise, but when the market overheats, it tends to run out of steam and the price begins to fall, which leads to liquidation cascades. .
However, the same goes for the bear market, as price bottoms develop over the years, prices can rebound quickly, forcing traders to scramble to hedge. In these moments, local funds are formed.
On Thursday, Glassnode data showed that the funding rate briefly increased (-0.001%), for the first time this year and only a few times since November. This led to leverage and a change in sentiment before Bitcoin moved back above $94,000. To compare the softness of the negative funding rate on Thursday, during covid-19 in March 2020, we saw negative funding rates peak at (-0.309%).
A negative funding rate does not always lead to immediate price rebounds or dips, but can be observed alongside other price charting tools and technical indicators to form a view of the market. Negative funding rates could also signal a persistent bear market rather than an immediate bottom. Likewise, positive rates during a bull market may not mean the market is overheated, but could reflect still-strong demand.
Since 2023, the funding rate has been mostly positive due to Bitcoin’s bull market, but it has been accompanied by brief periods of negative rates, which tend to occur when prices are lowest. This was seen during the collapse of Silicon Valley Bank in 2023 and 2024, just before bitcoin surged higher in both years.
A bottom tends to appear when the funding rate becomes negative and bears become overconfident. The same thing happens when the bulls become complacent and the spot price can no longer keep up with the leverage used. In both cases, traders tend to get liquidated, and in this case, it’s the bears.
