The Bitcoin price has been one to watch over the past week, rising almost 10% in less than seven days. According to the latest on-chain data, the bears could be in for an even longer ride as funding rates fall to critically low levels.
BTC bear is at risk of a short squeeze
In a new Quicktake post on the CryptoQuant platform, crypto analyst Gaah says revealed that Bitcoin funding rates have fallen sharply in recent days as the price lays the foundation for a sustainable recovery. The relevant indicator here is the Funding Rates metric, which tracks the periodic fee exchanged between traders in a derivatives market for a given cryptocurrency (BTC in this case).
A positive financing rate usually means that long traders (investors with buy positions) pay a fee to short traders (investors with sell positions) in the derivatives market. On the other hand, when the financing rate is negative (as seen in the current scenario), it means that the periodic fee is more likely to be paid by the short traders to the long traders.
According to data from CryptoQuant, the Bitcoin Funding Rates metric fell to around -0.011, the lowest level since early February, when the price of BTC fell to the $60,000 level. “The market is very ‘easy’ and obvious to trade on [the] sales side,” Gaah wrote in the Quicktake post.
From an on-chain perspective, a negative funding rate indicates that the majority of the market is – bears – betting against the price of Bitcoin. However, extremely negative funding rates have historically proven to be a ‘contrarian signal’, meaning that the asset price tends to move in the opposite direction of the crowd (the bears, in this scenario).
As prices begin to rise unexpectedly, several traders may be forced to close out their over-leveraged short positions, causing a further increase in the value of the asset, a phenomenon known as the ‘short squeeze’. As crypto analyst Gaah noted in their Quicktake post, the chances of a short squeeze are increasing by the day.
“Caution is advised when taking positions in [the] current range, because it represents an area of purchasing demand,” concluded the market expert.
Bitcoin price overview
After a fairly positive performance last week, Bitcoin’s price action has slowed somewhat this weekend – as has been seen on most weekends especially over the past year. At the time of writing, the leading cryptocurrency is valued at $73,425, reflecting no significant movement in the past 24 hours.
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