Data shows that Bitcoin Funding Rates have recently turned negative on the exchanges, indicating that bearish bets are currently dominating.
Overall Bitcoin funding rates have fallen
As analytics company Santiment notes in a new after at X, aggregated Bitcoin Funding Rates currently show a significant short bias. The “Financing Rate” here refers to an indicator that tracks the amount of periodic fees that traders in the derivatives market exchange among themselves on a particular centralized exchange.
When the value of this measure is positive, it means that the long contract holders pay a premium to the short contract holders to maintain their position. Such a trend could be a sign that bullish sentiment is dominant on the platform. On the other hand, the fact that the indicator is below zero implies that the majority of traders may be harboring a bearish mindset as shorts in the stock market overtake longs.
Here is the chart shared by Santiment showing the trend in aggregated Bitcoin funding rates across all exchanges:
As shown in the chart above, Bitcoin Funding Rates on the exchanges have recently witnessed a notable negative spike, implying that the demand for short positions has increased. “Traders are showing clear concern over fears of an escalating war and expressing frustration over the lack of progress on the Clarity Act,” the analytics firm said.
The rise of bearish sentiment may not actually be bad for the cryptocurrency, but if history is anything to go by, the price of the asset often tends to go against the public’s opinion.
In the derivatives market, this opposite effect can occur due to liquidations that lead to the opposite kind of price movements. “Historically, extreme shorting increases the likelihood of cryptocurrencies rebounding due to potential short liquidations, providing a boost when prices break through resistance levels,” Santiment explains.
While both sides of the market can fall prey to liquidations depending on random volatility, the side that is most dominant is usually the one most likely to be hit by a mass cascade. For Bitcoin, that side is currently the short side. It now remains to be seen how the asset will develop in the coming days given the bearish sentiment.
BTC price
The effect of the negative financing rate may already be noticeable as the asset has staged a recovery above the $70,000 level over the past day.
The upward movement has led to short liquidations of over $100 million, as shown in the heatmap MintGlass suggests.
