Bitcoin Funding Rate Turns Highly Positive, Long Squeeze In The Making?

Data shows the Bitcoin funding rate has increased to a relatively high positive value recently, something that could lead to a long squeeze in the market.

Bitcoin Funding Rate Becomes Positive As Open Interest Rises Up

As pointed out by an analyst in a CryptoQuant post, the BTC funding rate has a positive value at the moment.

The “open interest” is an indicator that measures the total amount of positions currently open in the Bitcoin futures market.

When the value of this metric is high, it means there is a large amount of leverage involved in the market right now. Excess leverage usually leads to the crypto’s price turning more volatile.

Related Reading | When Will The Extended Stretch Of Extreme Fear In Crypto End?

On the other hand, low values of the open interest can result in lesser volatility in the BTC market as there isn’t much leverage involved in the futures market.

Now, here is a chart that shows the trend in the open interest over the past week:

Looks like the metric's value has increased recently | Source: CryptoQuant

As you can see in the above graph, the Bitcoin open interest has observed a rise in recent days. This could mean that the crypto may face higher volatility in the coming days.

Another indicator, the “funding rate,” measures the periodic fee that traders on derivatives exchanges pay each other to hold onto their positions. This metric tells us how the open interest is divided between the long and short traders at the moment.

Related Reading | Bitcoin Manage To Hold Its Own As Wall Street Open With Losses, Analysts Weigh In On Bottom

The below chart shows how this indicator’s value has changed during the past seven days.

The value of the indicator seems to have been green recently | Source: CryptoQuant

From the graph, it’s apparent that the Bitcoin funding rate has a relatively high positive value currently. This means that there are a higher number of longs present in the market right now.

Since long traders are paying a premium to keep their positions (which is why the rate is positive), the overall market sentiment is leaning towards bullish.

However, with the high open interest values, it’s possible that any large swing in the price can cause what’s called a “long squeeze,” which is an event where mass liquidations of long positions cascade together and push the price further down.

BTC Price

At the time of writing, Bitcoin’s price floats around $20.9k, down 2% in the last week. Over the past month, the crypto has lost 5% in value.

The price of BTC has climbed up over the past couple of days | Source: BTCUSD on TradingView Featured image from Aleksi Räisä on Unsplash.com, charts from TradingView.com, CryptoQuant.com

by Hououin Kyouma on July 16, 2022 at 12:30AM