From the middle of June until the middle of July, Bitcoin funding rates experienced a very bad month. Funding rates, which had previously remained subdued, quickly fell below neutral and remained there for the next month. However, there has been a major shift, with funding rates returning to neutral last week.
Bitcoin funding rates had fallen to record lows as the digital asset’s price fell. This was alarming because funding rates were likely to arise when the digital asset began to trade at what was referred to as a “discount.” This could not be further from the truth, as funding rates reached an all-time low in June. It showed that perp traders remained gloomy about cryptocurrency and chose not to invest.
Last week brought positive news, as funding rates returned to neutral and remained there. Both Binance and Bybit crypto exchanges reported financing rates of 0.01 %. The price of bitcoin returned to neutral as it began a relief bounce that saw it break above $23,000 (R390.5K).
Open interest had followed the same path, albeit it had retraced over the week when the price fell again. It demonstrated that there is still a lot of leveraging going on in the market, as bitcoin open interest was not much different from what was recorded the previous week, despite the fall.
The return of bitcoin funding rates to a neutral level reflects the re-emergence of positive sentiment among traders and investors. It does not indicate that the market has returned to its prior bullish phase, but it does indicate that investors are now looking positively at bitcoin and the crypto sector as a whole.
It corresponds to the Fear & Greed index, which has finally exited the ‘Extreme Fear’ zone for the first time in nearly three months. It saw an extraordinary rebound from last week’s sentiment, with a score of 18 indicating intense terror. Although the market remains apprehensive, the recovery is restoring faith in the market. It is also reflected in the increasing buying pressure this week.
The association between funding rates and the price of bitcoin may be positive or negative in the future, depending on how well the cryptocurrency performs in the market. If the recovery continues, funding rates may rise above neutral for the first time in more than two months.