- Bitcoin’s price may rise if financing rates continue to fall.
- Coin’s currency reserve has increased since the ETF’s approval.
A sharp decline in Bitcoin [BTC] price and funding rates could provide a buying opportunity that could boost the coin’s value, pseudonymous CryptoQuant analyst MAC_D noted in a new report.
MAC_D found that the coin’s Funding Rates rose to a high of 0.049% on January 2 after long traders piled into leveraged long positions.
This happened as the market waited for the US Securities and Exchange Commission’s decision on the BTC Spot ETF.
However, the high has since “cooled off” as the price of the coin has trended downward. At the time of writing, BTC’s funding rate was 0.001%, according to data from CryptoQuant.
So, the bullish sentiment remained in the market despite the coin’s recent price action.
Source: CryptoQuant
According to MAC_D, in order to end the current downtrend, a capitulation event must occur that will result in the massive liquidation of these long positions.
The analyst noted:
“If the price drops sharply and the funding ratio turns negative on the 1-hour chart, it could mean that leveraged traders are too pessimistic about the market, which could be a good opportunity to buy back BTC.”
This means that before BTC can witness an upward price correction, two things must happen: a significant sell-off that wipes out overextended long positions and the subsequent drying up of selling pressure.
This would result in a sharp decline in the value of the currency, accompanied by a negative financing rate on the 1-hour chart.
While this would indicate significant pessimism among leveraged traders, it could provide a potential buying opportunity for those with a longer investment horizon.
Decrease in profitable trades
At the time of writing, BTC exchanged hands at $39,956. According to data from CoinMarketCapthe value of the coin has fallen by 13% since BTC ETFs became tradable on January 10.
This price drop was the result of increased profit-taking, which led to an increase in the currency’s foreign exchange reserve.
Since January 10, the total number of BTCs held on exchanges has increased by 0.47%. According to CryptoQuant, there were 2.1 million BTCs on the exchange at the time of writing.
Read Bitcoin’s [BTC] Price forecast 2024-25
As the coin sell-off increased, the profitability of daily BTC trades decreased.
Since January 10, the daily ratio of BTC transaction volume to profit and loss has fallen by 10%, according to data from Santiment.
