The Bitcoin funding rate has declined sharply. According to a post on X by Crypto Rover, the Bitcoin funding rates have turned negative, which is an indication that the market could be experiencing a short squeeze.
“Funding Rates”, is a measurement of the periodic fee exchanged between sellers and buyers in perpetual future contracts.
The rate keeps the perpetual contract price in line with the Bitcoin spot price. By adjusting the holding position costs, it balances the market.
A positive value of this indicator shows that the investors are seriously trying to hold onto their positions by paying a premium to the short ones.
However, a negative indicator represents that a bearish movement could be on the horizon since the long holders are far less than the short ones.
Bitcoin Funding Rate Has Remained Largely Positive This Year
The Bitcoin funding rate has maintained a positive outlook since the beginning of the year, although there were a few dips here and there. However, the recent crash has taken the metric to significant negative values.
Bitcoin recorded positive values earlier, which is an indication that the market had a bullish atmosphere. It shows that investors were looking to bet on a potential rise in the crypto’s price. But Bitcoin has seen some drawdowns during the consolidated periods that followed the rally.
They were not strong enough to impact or change the bullish trend. But the sharp drop seems to have ultimately caused investors to consider a bearish outlook on Bitcoin.
Bitcoin Is Still Showing A Strong Resistance
The crash is causing investors to take a long liquidation approach, which can trigger what is called a squeeze. If a squeeze occurs, a sharp movement in the price could cause mass liquidations, fueling a further movement in the price. It could also lead to a torrent of more liquidations.
This event could have an impact on the derivatives market which has shown more dominance. With the shift of the balance toward the shorts, the possibility of the market experiencing a short squeeze is not farfetched.
Although a short squeeze may not occur in these situations, if the market witnesses more volatility, it could push the short-heavy market. However, Bitcoin has been recovering steadily from the crash. As of the time of writing, the price has moved back to $60,754.
Last week, Bitcoin started a free-fall as it shed $367 billion in total value before bouncing back slightly. The cryptocurrency’s surge to above $60,000 is a signal of its resilience despite the slight drop.
