As a seasoned analyst with over two decades of experience navigating various financial markets, I’ve seen my fair share of market ebbs and flows. The recent negative funding rates in the Bitcoin perpetual swaps market have piqued my interest due to its historical significance, particularly when it comes to signaling potential market bottoms.
In recent times, Bitcoin has been encountering difficulties, mainly due to a prolonged bearish outlook that has caused the perpetual swap market to dip into regions with negative funding rates, as indicated in a study by K33 Research.
Using past market statistics, analysts from the research company suggest that this downward pattern might indicate a possible low point for the cryptocurrency.
Perpetual Funding Rates And Market Bottom
As a crypto investor, I found the report written by Vetle Lunde and David Zimmerman intriguing. It proposes that the current unfavorable funding rates could signal a positive outlook for Bitcoin’s future price movements. In simpler terms, it seems like we might be in for some optimistic price action with these negative funding rates.
Significantly, the continuous futures market, where traders can guess the value of Bitcoin without actually possessing it, has seen a dip in funding rates for the first instance since March 2023.
In simple terms, when traders are required to pay for holding long positions, it’s known as negative funding rates. This usually indicates a very bearish outlook. As per K33 Research, this has happened seven times since 2018 when considering the average 3-week funding rates. Historically, these instances have frequently been followed by market bottoms.
According to K33 analyst findings, when the 30-day average funding rates for Bitcoin became negative in previous instances, Bitcoin tended to perform exceptionally well during the subsequent months.
The data reveals that average 90-day returns after negative funding rate flips stand at 79%, with a median return of 55%. This historical precedent is key to the analysts’ bullish outlook for BTC as the year progresses.
Additionally, it’s predicted by K33 analysts that Bitcoin might be preparing for an upward price trend by the closing of 2024.
A significant increase in open interest for perpetual swaps is approaching its peak since late July, which some analysts suggest could trigger a short squeeze.
In simple terms, a short squeeze happens when investors who predicted Bitcoin would decrease (by short-selling it) find themselves in a situation where they must purchase Bitcoin to meet their obligations, leading to an increase in its value.
External Factors Shaping Bitcoin’s Outlook
Beyond just on-chain data, this report also delves into external market forces that might shape Bitcoin’s price trend. The relationship between BTC and the S&P 500 has peaked at a 23-month high of 0.67, suggesting that broader economic variables are likely to have an influence on Bitcoin’s movement as well.
According to K33 analysts, key upcoming events like the release of the Consumer Price Index (CPI) and the Federal Reserve’s FOMC meeting scheduled for September 18 may have a substantial impact on the immediate fluctuations in Bitcoin’s value.
Additionally, the experts take into account various other influences that might spur Bitcoin’s possible rebound later this year. Some of these factors are:
An extra boost for Bitcoin’s price might come from the ongoing supply surplus, along with the favorable impact of seasonal trends.
Featured image created with DALL-E, Chart from TradingView
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2024-09-12 15:42