Bitcoin and Ether Perpetual Futures Funding Rates Remain Elevated Despite Price Correction
The spot prices of Bitcoin and Ether have experienced a 7% and 6% decline respectively over the past 24 hours. Despite this, the funding rates for perpetual futures contracts on both assets remain elevated. The global cryptocurrency market cap has also fallen by 5.8% to $2.5 trillion within the same period, according to CoinGecko data.
Funding Rates Suggest Further Downside Potential
Analysts at QCP Capital have suggested that the high funding rates may indicate that the ongoing price correction in the cryptocurrency market still has room to continue. They noted that even with the significant drop in spot prices, funding rates on retail-focused exchanges are still at 20-30%. This suggests that speculators are adding leveraged long positions during the dip.
- The forward curve remains elevated, allowing traders to lock in a risk-free yield of 23% on an Ether April spot-forward spread.
- QCP Capital analysts expect these funding rates to decrease if the market continues to move lower.
ETC Groupโs Head of Research, Andrรฉ Dragosch, also believes that current funding rates indicate further downside potential for Bitcoin and Ether. However, he sees any pull-back as a short-term opportunity to increase exposure ahead of the upcoming Halving in April.
High Funding Rates Despite Spot Downturn
Data from The Blockโs Data Dashboard reveals that the daily average Bitcoin funding rate for perpetual futures on major derivatives exchanges like KuCoin, Huobi, and BitMEX is still above 20%. Similarly, Ether perpetual futures funding rates on multiple derivatives exchanges remain higher than those for Bitcoin.
- Gate.io, BitMEX, Kucoin, and Huobi all have daily averages of Ether funding rates above 20%.
- Gate.io has exceptionally high funding rates exceeding 45%, while BitMex surpasses 39%.
Speculators Still Holding Long Positions
Cryptocurrency derivatives trader Gordon Grant suggests that the persistently elevated funding rates indicate the presence of speculator length. This refers to the extent to which speculators are willing to hold their positions in the market. Grant also notes that the high funding rates incentivize individuals to hold Bitcoin or Ether spot and sell it forward.
- The limited availability of actual Bitcoins for trading compared to demand is due to Bitcoin ETF assets under management scaling up and effectively locking up Bitcoin in custody underlying those shares.
- Grant points out that there are currently very few functioning centralized finance (CeFi) lending markets available to alleviate funding pressures, unlike during the corresponding period in Bitcoinโs price cycle in 2021.
The persistence of high funding rates indicates a shortage of available Bitcoins and Ether for trading, contributing to the current market dynamics.
Hot Take: Funding Rates Remain Elevated Despite Market Correction
The recent decline in spot prices for Bitcoin and Ether has not significantly affected the elevated funding rates for perpetual futures contracts on these assets. Despite the market correction, funding rates on retail-focused exchanges remain high, suggesting that speculators are still adding leveraged long positions. Analysts believe that these elevated funding rates indicate further downside potential for Bitcoin and Ether. However, some experts view any pull-back as a short-term opportunity to increase exposure ahead of future events like the Halving in April. The persistence of high funding rates highlights the limited availability of actual Bitcoins and Ether for trading, as well as the lack of functioning centralized finance lending markets to alleviate funding pressures. As the cryptocurrency market continues to evolve, it will be interesting to see how funding rates and market dynamics develop.
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