Binance Futures’ funding rate exceeded Deribit’s on December, which has historically led to consolidation or a recession in the price of Bitcoin.

CryptoQuant’s data says that. Historically, every time this event has taken place, the dominant cryptocurrency features a local cap or consolidation.

The funding rate of the major cryptocurrencies, including Bitcoin and Ether (ETH), suffered a considerable increase in the last 48 hours. This increase indicates that the futures market is overheating, increasing the likelihood of a recession. According to Coinmarketcap, currently, the market capitalization of Bitcoin is $ 427,433,253,507.

What’s Next for Bitcoin?

Bitcoin has already exhibited a relatively minuscule pullback and some consolidation after its recent rally. The price of Bitcoin surged from $ 19,300 to $ 23,800 on Binance. After a 23% increase, a 3% to 4% correction seems to be relatively small in comparison to historical corrections after a large rally.

A Bitcoin pullback was destined to happen since the futures funding rate surpassed 0.1% on December on major exchanges.

The Bitcoin futures market uses a system called “financing” to create a balance in the market. If there are more long contracts on the market, the financing rate becomes positive. If this happens, buyers or holders of long contracts have to pay short-sellers, and vice versa.

The funding rate surpassed 0.1% on Bybit and other leading exchanges for the first time since the November rally to $ 19,000. At that point, after the futures market overheated, the price of Bitcoin marked a significant recession that reached at least $ 16,000.

A 20% to 30% pullback was likely at the time because the funding rate remained consistently high. The funding rate has cooled down comparatively fast. Therefore, the chances of consolidation rather than a correction are greater particularly as new retail investors keep their position largely on the sidelines.

A cryptocurrency trader trading under a pseudonym noted that Binance’s futures funding rate exceeded Deribit’s.

Although this data is not of specific relevance, historical trends show that when this occurs, the price of Bitcoin tends to decline. The trader said:

“It seems like most of the time that Binance funding outpaces Deribit funding we have a sideways move or a local top. It could be a” retail FOMO peak signal. “

One reason behind this trend could be the importance of Binance Futures as a way of measuring general market sentiment. Once the price of Bitcoin shows a larger price movement, Binance Futures tends to show large sell-offs due to its high open interest.

Binance Futures consistently keep on the top of the three futures exchanges due to its open interest alongside CME and OKEx. Therefore, when Binance Futures start to show signs of overheating, the market begins to move cautiously. Technical analyst Cantering Clark said that if the price of Bitcoin breaks above $ 23,350, an uptrend will likely occur.

By: Jenson Nuñez.

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