This Historic Bitcoin Indicator May Indicate A Retreat
Coinputin.com – Bitcoin (BTC) futures funding ratio on Binance futures platform Binance futures outpaced Deribit on December 18, according to CryptoQuant data. Historically when this happened, the dominant cryptocurrency saw a local peak or consolidation. The funding rate of major cryptocurrencies, including Bitcoin and Ethereum (ETH), has increased significantly in the past 48 hours. According to Joseph Young in CoinTelegraph, this usually indicates that the futures market is overheating, which increases the likelihood of a pullback.
Comparison of funding rates in Binance and Deribit
What next for Bitcoin?
Bitcoin has seen a relatively small pullback and some consolidation after its recent rally. In Binance, the price of Bitcoin rose from $ 19,300 to $ 23,800 in the two days between December 16-17. A correction of 3-4% after a 23% price increase is relatively small compared to historical corrections after a big rise.
A pullback in BTC was inevitable when the futures funding rate topped 0.1% on the major exchanges on December 18, according to the news source.
The Bitcoin futures market uses a system called “funding” to find balance in the market. If there are longer-term contracts in the market, the funding rate will be positive. That is, buyers or long-term contract holders have to pay short-position sellers and vice versa.
18, the funding rate reached $ 19,000, exceeding 0.1% on Bybit and other leading exchanges for the first time since the rally in November. After the futures market overheated, BTC had seen a significant return to $ 16,000 on November 14.
BTC perpetual swap funding rate. Source: Digital Assets Data
According to Cointelegraph writer Joung, there was a 20% to 30% chance of withdrawal in that period because the funding rate remained consistently high. This time, the funding rate fell relatively quickly. So, along with other data; especially with new retail investors still largely on the sidelines, the chances of consolidation rather than correction are higher.
An anonymous cryptocurrency trader (@ama899) has found that the Binance Futures Funding Rate has passed Deribit. Although this data has no specific relevance, it shows that Bitcoin tends to retreat when historical trends occur. Trader said::
“APPARENTLY WE GET A HORIZONTAL MOVE OR A LOCAL PEAK WHEN THE BINANCE FUNDING RATE CROSSES DERIBIT. THIS COULD BE A’ RETAIL FOMO PEAK SIGNAL’.”
One of the reasons behind this trend may be the fact that Binance futures are important in measuring overall market sentiment. When bitcoin’s Price sees a big move, Binance Futures often see big liquidity due to high open positions.
Binance Futures remains one of the top three futures exchanges consistently based on open position rates, alongside CME and OKEx. So, according to the author, the market may be cautious in the near term as Binance Futures start to show signs of overheating.