Here’s what futures market data could suggest about whether this latest Bitcoin recovery will be a dead-cat bounce or not.
Bitcoin Futures Market Shows No Signs Of Overheating So Far
As explained by an analyst in a CryptoQuant Quicktake post, the BTC funding rate has stabilized around a relatively low value recently. The “funding rate” here refers to an indicator that tracks the amount of periodic fees that derivatives market traders are paying each other right now.
When this metric’s value is positive, it means that the long contract holders are paying a premium to the short investors to hold onto their positions. Such a trend implies that the majority of the market shares a bullish sentiment.
On the other hand, a negative value of the indicator implies that short investors are the dominant force in the sector, and thus, the average derivatives user is bearish on the coin.
Now, here is a chart that shows the data for the Bitcoin funding rate, as well as its 7-day simple moving average (SMA), over the past year or so:
From the above graph, it’s clear that the Bitcoin funding rate has been mostly at positive levels for a while now. This makes sense, as the asset has rallied over the last few months, so investors as a whole would be bullish about it.
Historically, though, a highly positive funding rate has been a bearish sign for the cryptocurrency’s price. This is because the asset tends to perform in the direction opposite to the majority’s expectation, and the likelihood of a contrary move rises as this expectation becomes stronger.
At high values of the indicator, there is an overwhelming bullish sentiment, so tops for the coin can become more probable. As is apparent in the chart, the Bitcoin all-time high (ATH) back in March was also set alongside a large spike in the metric.
The sentiment had initially remained at significant bullish levels in the consolidation period that followed this top, but recently, the metric has observed a cooldown.
The Bitcoin funding rates are still positive, but their scale is much smaller now. More specifically, the 7-day MA of the indicator is currently floating at just 0.45%, which is notably lesser than the 3% to 4% values seen in March.
So far, the metric hasn’t spiked alongside the cryptocurrency’s recovery beyond the $68,000 level, potentially suggesting that the sentiment hasn’t overheated yet. As the quant notes:
In previous “dead-cat-bounce” scenarios, funding rates were higher, with March 2021 seeing a rate close to 3% before a correction to $30,000, and November 2021 rates between 0.7% and 0.8% before the 2022 bear market.
BTC Price
At the time of writing, Bitcoin is trading around the $68,500 mark, up almost 9% over the past week.
