Recent data reveals that Bitcoin funding rates on exchanges have dipped into negative territory, indicating that short positions are now the dominant force in the market. According to an analyst from CryptoQuant, Bitcoin’s funding rates have experienced a sharp decline following a market crash.
The funding rate is a metric that tracks the periodic fee exchanged between holders of derivatives contracts. Positive values indicate that long investors are paying a premium to short investors to maintain their positions, signifying a bullish market sentiment. Conversely, negative values suggest a bearish sentiment, with short investors outweighing long ones.
Recent data shows that Bitcoin funding rates have maintained positive values throughout 2024, apart from a few minor dips. This trend was attributed to a bullish market atmosphere, particularly during the rally fueled by spot exchange-traded fund (ETF) demand, which pushed Bitcoin to an all-time high. However, the recent market crash has significantly altered sentiment, turning the funding rates negative.
The crash led to substantial long liquidations, causing a “long squeeze.” In such events, sharp price swings result in mass liquidations, which further exacerbate price movements and trigger a cascade of additional liquidations. This shift in market dynamics, where shorts have gained dominance, raises the potential for a future “short squeeze” if market volatility continues.
Bitcoin’s price has shown signs of recovery, climbing back to $57,500 after hitting recent lows. The market remains precarious, and the balance of power has now shifted towards short positions, leaving open the possibility of a short squeeze should volatility persist.
