Since losing the $100,000 price mark in early February, BTC has struggled to put up any major positive run in the past three months. The latest on-chain data suggests that the dream of reclaiming a six-figure valuation might truly be on, with the Bitcoin price looking to resume its bull run.
A high or positive funding rate signals that the long traders (investors with buy positions) are paying a fee to short traders (investors with sell positions). This direction of the periodic payment typically indicates a dominant bullish sentiment in that particular market.
On the flip side, when the funding rate metric has a negative value, it implies that investors with short positions are paying traders with buy positions in the derivatives market. This funding rate trend signals that the market is being dominated by the bears.
In their Quicktake post, Taha attributed the recent decline in the funding rate to the aggressive selling by the Bitcoin retail traders. The on-chain analyst then correlated the selling pressure to fear amongst market participants rather than “fundamental weakness.”
Taha noted that when the funding rates become too negative, the Bitcoin market often becomes susceptible to a short squeeze, where short traders are forced to cover their positions due to rising prices — fueling a further upside move. Moreover, extremely low funding rates have been historically correlated with local price bottoms, preceding bullish trend reversals.
