Here's what futures market data could suggest about whether Bitcoin's recent rebound will be a dead bounce.
The Bitcoin futures market shows no signs of overheating yet
As one of the analysts at CryptoQuant Quicktake explained mail, the BTC funding rate has stabilized around a relatively low value recently. The “funding rate” here refers to an index that tracks the amount of recurring fees that derivatives market traders are currently paying each other.
When the value of this measure is positive, it means that long holders are paying a premium to short investors to hold their positions. Such a trend means that the majority of the market shares bullish sentiment.
On the other hand, a negative value of the indicator indicates that short investors are the dominant force in this sector, and therefore the average derivatives user tends to be bearish on the currency.
Now, here's a chart showing data for Bitcoin's funding rate, as well as its 7-day simple moving average (SMA), over the past year or so:
The value of the metric appears to have been positive in recent months | Source: CryptoQuant
From the chart above, it is clear that Bitcoin's funding rate has been mostly at positive levels for a while now. This makes sense, as assets have been rising over the past few months, so investors as a whole would be optimistic about this.
However, historically, a very positive funding rate has been a bearish signal for the cryptocurrency price. This is because the asset tends to perform in the opposite direction to the majority's expectations, and the probability of an adverse movement increases when these expectations become stronger.
At high values of the indicator, there is an overwhelming bullish sentiment, so currency tops can become more likely. As can be seen in the chart, Bitcoin's all-time high (ATH) was also set in March along with a significant spike in the metric.
Sentiment initially remained at significantly higher levels in the consolidation period that followed this peak, but more recently, the gauge has observed a slowdown.
Bitcoin funding rates are still positive, but their size is much smaller now. More specifically, the index's 7-day moving average is currently floating at just 0.45%, which is significantly lower than the 3% to 4% values seen in March.
So far, the gauge has not risen in tandem with the cryptocurrency's recovery beyond the $68,000 level, likely indicating that sentiment has not run too high yet. As Quantum notes:
In previous “dead bounce” scenarios, funding rates have been higher, with March 2021 seeing a rate close to 3% before correcting to $30K, and November 2021 rates between 0.7% and 0.8% before the 2022 bear market.
Bitcoin price
At the time of writing, Bitcoin is trading at around $68,500, up roughly 9% over the past week.
Looks like the price of the coin has seen some sharp bullish momentum over the past day | Source: BTCUSD on TradingView
Featured image by Yiğit Ali Atasoy on Unsplash.com, CryptoQuant.com, chart from TradingView.com