Here’s what futures market data might suggest about whether or not this latest Bitcoin rally will be a dead cat bounce.
Bitcoin futures market shows no signs of overheating so far
As an analyst explains in a CryptoQuant Quicktake job, the BTC funding rate has recently stabilized around a relatively low value. THE “financing rate» here refers to an indicator that tracks the amount of recurring fees that derivatives market traders currently pay themselves.
When the value of this measure is positive, it means that long contract holders pay a premium to short investors to maintain their positions. Such a trend implies that the majority of the market shares a bullish sentiment.
On the other hand, a negative value of the indicator implies that short investors are the dominant force in the sector and therefore the average derivatives user is bearish on the coin.
Now here is a chart that shows Bitcoin funding rate data, along with its 7-day simple moving average (SMA), over the past year:
The value of the metric appears to have been positive in recent months | Source: CryptoQuant
From the chart above, it is clear that the Bitcoin funding rate has generally been at positive levels for some time now. This makes sense as the asset has been rallying over the past few months, so investors as a whole would be bullish on this.
Historically, however, a very positive funding rate has been a bearish sign for the price of the cryptocurrency. Indeed, the asset tends to evolve in the direction opposite to the majority’s expectation, and the probability of a contrary development increases as this expectation becomes stronger.
At high values of the indicator, there is overwhelming bullish sentiment, so the coin’s highs may become more likely. As the chart shows, Bitcoin absolute record (ATH) in March, this also occurred alongside a sharp rise in the metric.
Sentiment initially remained at significant bullish levels during the consolidation period following this peak, but recently the metric has seen a slowdown.
Bitcoin funding rates are still positive, but their magnitude is now much smaller. Specifically, the indicator’s 7-day MA is currently floating at just 0.45%, which is significantly lower than the 3% to 4% values seen in March.
So far, the metric has not risen alongside the cryptocurrency’s rally past the $68,000 level, potentially suggesting that sentiment has not yet overheated. As the quant notes:
In previous “dead cat bounce” scenarios, funding rates were higher, with a rate near 3% in March 2021 before a correction to $30,000, and rates between 0.7% and 0. 8% in November 2021 ahead of the 2022 bear market.
BTC Price
At the time of writing, Bitcoin is trading around the $68,500 mark, up almost 9% over the past week.
Looks like the price of the coin has seen some sharp bullish momentum over the past day | Source: BTCUSD on TradingView
Featured image by Yiğit Ali Atasoy on Unsplash.com, CryptoQuant.com, chart by TradingView.com
