Bitcoin Bull Betting Skyrockets: Record 66% Funding Rates

• The Rising Costs of Holding Long Positions in Bitcoin
• Understanding Perpetuals
• Unprecedented Funding Rate
• An Elevated Funding Rate Indicating a Bullish Market
• The Impact of High Funding Rates
• Speculation Surrounding Bitcoin ETF Approval

The Rising Costs of Holding Long Positions in Bitcoin

The costs associated with retaining extended positions or bullish leveraged bets in the continual futures market associated with bitcoin soared to new heights early Monday, as bitcoin exceeded a rate of $45,000 for the first time since April 2022. This surge in price is tracked by Matrixport, a crypto services provider, which recorded a record-breaking global average perpetual funding rate of 66% annualized during Asian trading hours.

Understanding Perpetuals

Perpetuals, or futures with no expiry, employ a funding rate mechanism to synchronize prices for perpetuals with the ongoing market price of a given cryptocurrency. A positive funding rate signifies that perpetuals are trading at a premium to the spot price, with longs compensating shorts to keep their positions open. Conversely, negative rates represent the opposite. These funding rates are gathered by exchanges every eight hours.

Unprecedented Funding Rate

According to Markus Thielen, head of research and strategy at Matrixport and founder of 10x Research, the funding rate hit a new peak at 66%, meaning that those with long positions have to pay short sellers an annualized rate of 66% to maintain their positions. This funding rate has remained at a high level throughout the holiday period.

An Elevated Funding Rate Indicating a Bullish Market

The chart depicts a consistently high funding rate during the year-end holiday season, indicative of a bullish market sentiment. Interestingly, the bitcoin funding rate has remained high during the holiday period, suggesting a very bullish sentiment from crypto traders and expectations of an imminent bitcoin ETF approval, added Thielen.

The Impact of High Funding Rates

It is important to note that extremely high funding rates often pose a challenge for longs when the market stops displaying upward trends, leading to the termination of bullish bets and a subsequent price pullback. At the time of this report, bitcoin shows no signs of bullish fatigue, trading above $45,000.

Speculation Surrounding Bitcoin ETF Approval

The cryptocurrency experienced a robust rally of over 56% in the last quarter of 2023, driven by market speculation that the U.S. Securities and Exchange Commission would greenlight one or more spot-based BTC exchange-traded funds (ETFs). As per reports from Reuters, a decision on this matter is expected as soon as Tuesday.

Edited by Jonathan Stoker