Bitcoin Funding Rate Enters Deep Red On Binance — Short Squeeze Soon?

The price of Bitcoin was somewhat slow in the last days of April before bursting to life again to begin the new month of May. The premier cryptocurrency has since made a return near $98,000, flirting with the highly coveted $100,000 level to kick off the weekend.

Since losing the $100,000 price mark in early February, BTC has struggled to put up any major positive run in the past three months. The latest on-chain data suggests that the dream of reclaiming a six-figure valuation might truly be on, with the Bitcoin price looking to resume its bull run.

What Negative Funding Rates Mean For BTC Price?

In a recent Quicktake post on the CryptoQuant platform, on-chain analyst Amr Taha revealed that the Bitcoin funding rates on Binance have witnessed a significant decline in the past few days. The “funding rate” indicator is a metric that measures the periodic fee exchanged between traders in the derivatives (perpetual futures) market.

A high or positive funding rate signals that the long traders (investors with buy positions) are paying a fee to short traders (investors with sell positions). This direction of the periodic payment typically indicates a dominant bullish sentiment in that particular market. 

On the flip side, when the funding rate metric has a negative value, it implies that investors with short positions are paying traders with buy positions in the derivatives market. This funding rate trend signals that the market is being dominated by the bears.

According to data from CryptoQuant, the Bitcoin funding rate on Binance, the world’s largest crypto exchange by trading volume, has fallen into a deeply negative territory around -0.0008%. This development reflects a significant shift in the current market sentiment and dynamics.

In their Quicktake post, Taha attributed the recent decline in the funding rate to the aggressive selling by the Bitcoin retail traders. The on-chain analyst then correlated the selling pressure to fear amongst market participants rather than “fundamental weakness.” 

Taha noted that when the funding rates become too negative, the Bitcoin market often becomes susceptible to a short squeeze, where short traders are forced to cover their positions due to rising prices — fueling a further upside move. Moreover, extremely low funding rates have been historically correlated with local price bottoms, preceding bullish trend reversals.

Bitcoin Price At A Glance

As of this writing, the price of BTC stands at around $96,950, reflecting a 2% increase in the past 24 hours. Suppose BTC’s recent bullish momentum and the latest on-chain observation are anything to go by, there is a strong chance of the premier cryptocurrency making a return above $100,000 this weekend.