Does Bitcoin’s negative funding rate signal that bears are in total control?
2024.09.11 16:44
Bitcoin (BTC) price experienced a 2.2% correction on Sept. 11 following the release of US consumer inflation data, but it managed to reclaim the $56,500 level within a few hours. The movement closely tracked the S&P 500 index, which saw a 1.6% decline on Sept. 11 as US Consumer Price Index growth hit its lowest level in over three years.
Bitcoin survived CPI volatility, but traders doubt further gains are possible
Bitcoin traders are skeptical that the $58,000 resistance will be breached, given the increased demand for bearish positions using BTC futures contracts.
Bitcoin/USD (blue) vs. S&P 500 futures (magenta). Source: TradingView
The price action over the past three days shows a high correlation between Bitcoin and the US stock market, at least in the short term. This scenario is common during significant events, such as expectations of macroeconomic data or upcoming US Federal Reserve (Fed) decisions.
Investors were hoping that inflation slightly below market consensus on Sept. 11 would push the central bank to adopt a more aggressive interest rate cut. The US Core Consumer Price Index (CPI) grew by 2.5% year-over-year in August, but when excluding food and gas, prices increased by 3.2%.
From a trading perspective, this data lowered the odds of a 0.50% interest rate cut on Sept. 18, causing a negative initial reaction in the stock market. Opinions may differ on how persistent inflation should impact Bitcoin’s price, especially when considering US debt financing costs.
The US Congressional Budget Office (CBO) projects that interest payments will surpass $1 trillion by 2025. Therefore, the longer the Fed keeps rates elevated, the more pressure it adds to government spending. In the long term, this inflationary trend could benefit Bitcoin’s price, despite the latest failure to break above $58,000 on Sept. 10.
However, pinpointing Bitcoin’s inability to maintain bullish momentum solely on macroeconomic data seems inconsistent, especially given that its last close above $60,000 was on Aug. 27. Some analysts point to outflows from spot Bitcoin exchange-traded funds (ETFs), while others cite ongoing regulatory uncertainty for exchanges, services, and intermediaries.
Demand for leverage Bitcoin longs has been dim indicating a lack of confidence
From a trading perspective, the demand for leverage through BTC futures contracts serves as a key indicator of investor risk appetite. When the market is optimistic, the funding rate on perpetual contracts turns positive. Rates between 0.2% and 1.2% per month generally suggest neutral market conditions, while rates below this range are considered bearish.
Bitcoin futures 8-hour funding rate. Source: Laevitas
Data shows that the Bitcoin funding rate has been mostly negative since Sept. 7, when BTC briefly dipped to $52,600 following $311 million in leveraged long liquidations over two days. However, the cost to enter bearish positions using leverage remained below 0.6% per month, indicating no clear confidence from the bears either.
Related: Bitcoin net flows hit $750M, highest outflow since May
To determine if this sentiment is limited to perpetual futures, it’s useful to examine Bitcoin options markets. A negative skew indicates higher demand for call (buy) options relative to put (sell) options, and neutral markets typically display a -6% to +6% delta skew.
Bitcoin 2-month options 25% delta skew at Deribit. Source: Laevitas
Bitcoin’s 25% delta skew currently stands at 4%, meaning put options are trading at a slight premium. More importantly, the metric remained relatively flat over the past week, indicating neutral sentiment, despite the retest of the $53,000 support on Sept. 7. Therefore, it would be incorrect to conclude that traders turned bearish solely due to the negative funding rate on perpetual contracts.
While it is difficult to predict whether the lack of demand for leveraged longs will reinforce the $58,000 resistance in the near term, the chances of a bullish move toward $60,000 will likely depend on how the stock market reacts to the recent Bitcoin price movements.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
