• Wed. Jun 22nd, 2022

Bitcoin Funding Rates Remain Negative But Open Interest Tells A Different Story

ByHazel R. Lang

Jun 16, 2022

Bitcoin funding rates have fallen over the past two weeks. Even as the digital asset’s price fell, leading some to call it “reduced”, these funding rates refused to break out of negative territory. Last week turned out to be no different as funding rates moved fully out of neutral territory and remain low.

Funding rates refuse to budge

Last week’s release was tough for the crypto market. The bloodbath had sent the majority of crypto market coins into the red and bitcoin hit the $20,000 level for the first time since December 2020. This caused panic among investors and funding rates reflected this panic.

Related Reading | Exchange entries surge as crypto investors clamor to exit the market

Last week ended with funding rates well below neutral. This follows the pattern of the 7 day period where the funding rate tended to be below neutral every day. It stood at 0.013% on Tuesday. It’s not the lowest point so far, but it marked the second lowest point in June.

This drop in funding rates follows what Arcane Research calls an orderly sell-off in derivatives markets. That’s no surprise given the liquidation volumes that rocked the market on Monday and Tuesday, reaching over $1 billion in a 24-hour period and setting a new daily record for liquidation events.

Funding rates remain low | Source: Arcane Research

The research and analysis firm also notes that investors are approaching the market with caution. This is due to the “current market structure with increased contagion risks related to Celsius and the macroeconomic context under pressure”. This caution comes as no surprise given that investor sentiment now resides in extreme fear, which means there is no room for reckless abandon in a market like this.

Bitcoin Open Interest Turns the Other Way

Even with low funding rates, other metrics are surprisingly not as bad. One of them is bitcoin’s open interest in perpetual markets. This metric remains high even though the price of bitcoin has fallen near the highs of 2017.

Historically, BTC-denominated open interest has declined in line with the market. This was not the case with the latest bitcoin crash. Instead of falling, open interest had hit several new all-time highs even as selling continued. This suggests that some investors believed the bottom had been reached and tried to take advantage of it. But that was not the case.

Bitcoin open interest

Open interest on the rise | Source: Arcane Research

Nonetheless, open interest for perpetuals was 298,500 BTC on Tuesday. This is in stark contrast to the last major stock market crash that took place in December, where open interest for perps fell to 190,000 BTC as the price of the digital asset fell.

Related Reading | Bitcoin Crash sends institutional investors running for the hills

This increase in open interest suggests that if bitcoin’s bottom hasn’t already been hit, it could very well be hit soon. Although it is important to keep in mind that a metric like this alone cannot give a complete picture of when bitcoin will bottom.

TradingView.com Bitcoin Price Chart

BTC drops to $21,000 | Source: BTCUSD on TradingView.com
Featured image from Arabian Business, charts from Arcane Reseach and TradingView.com

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