The near 15% sell-off in bitcoin (BTC) on April 17 marked a quick sentiment shift from “absolute euphoria to agonizing panic,” based on an analysis by Arcane Research of the cryptocurrency’s derivative-funding rates.
In the past few days, the cost to fund long positions in the market for bitcoin perpetual swaps, a type of derivative in the cryptocurrency markets similar to futures contracts in traditional markets, declined into negative territory, which typically precede spot price recoveries. The funding rate period is eight hours and is averaged across exchanges, weighted by the open interest, according to Glassnode.
- Prior to the BTC sell-off, the bitcoin funding rate had been very high throughout April, peaking on April 10 above 0.16% per eight hours, according to Arcane.
- “Once the $60,000 support was broken, a massive sell-off occurred, leading to a cascade of liquidations of over-leveraged longs.”
- “The funding rates declined far into negative territory, with the average funding rates reaching -0.045%.”
- Arcane noted that previous episodes of negative funding rates have usually been good entry points for long positions but cautioned that “it makes sense being extra cautious – at least when it comes to leveraged plays.”