The Dynamics of Negative Funding Rates in Cryptocurrency Market
After an impactful cryptocurrency market crash last week, a bearish sentiment looms over most cryptocurrencies, creating speculative imbalances and liquidity. In particular, two cryptocurrencies are currently dominated by short-sellers, creating interesting dynamics that could favor a short squeeze.
The Analysis of Cryptocurrency Market Data
For this analysis, data was retrieved from CoinGlass on July 7. The focus was on the funding rate of the most traded cryptocurrencies in the derivatives market, ordering by the highest open interest (OI).
- A negative funding rate indicates more open interest in short positions than longs.
- The crypto exchange algorithm makes short-sellers pay an APR to long-position traders in this scenario.
- A positive funding rate impacts liquidation prices and favors long or short squeezes.
Toncoin (TON) Negative Funding Rates
First, Toncoin (TON) displays a -26.65% funding rate on July 7, demonstrating a short-position dominance. The Open Network native token has faced criticism related to the Telegram crypto wallet, exerting bearish pressure on its value.
- TON witnessed a significant surge in 2024.
- The recent market crash prompted a correction in its price, leading to sell-offs and drops.
Despite the negative funding rate, TON’s derivatives volume decreased by 43% in the last 24 hours. This decline indicates that the $295.34 million open interest may not be sufficient to trigger a short squeeze as short-sellers are closing expensive positions due to the 26.65% annual cost.
Notcoin (NOT) Short Squeeze Alert
Conversely, Notcoin (NOT) has emerged as the eleventh largest open interest in the market, with a 526% volume surge. The token, with a $1.64 billion capitalization, has an open interest of $219.59 million, resulting in a 0.1338 OI/MCap ratio.
- The significant increase in open interest enhances the likelihood of a short squeeze.
- NOT is a play-to-earn token integrated into the TON Blockchain and the Telegram wallet.
However, the heightened open interest and surge in volume for opening short positions often signal bearish sentiment. Investors and traders seem to be anticipating lower prices for TON and NOT, which may hinder the occurrence of a short squeeze unless there are positive developments to boost their value.
The Potential for Short Squeezes in Cryptocurrency Market
If the negative sentiment towards highly shorted coins like TON and NOT persists due to fundamental issues and negative news, a short squeeze may not materialize, leading to further price declines. These coins would require bullish news and events to trigger a surge and reverse the bearish trend.
Hot Take: Seize Opportunities in a Volatile Crypto Market
As a crypto investor, staying informed about funding rates and open interest dynamics is crucial in navigating the current market conditions. By understanding the implications of negative funding rates and the potential for short squeezes, you can make informed decisions to benefit from short-term price fluctuations in the cryptocurrency market.
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