Data shows that Bitcoin funding rates have risen to the greenest levels since February 2023, which could increase the risk of a long squeeze.
Bitcoin funding rates are at their highest since February
As one analyst pointed out in a CryptoQuant post, long positions in the market have been accumulating lately. “Funding Rates” is an indicator that tracks the periodic fee that traders in the futures market are currently exchanging with each other.
Related Reading: Losing Bitcoin addresses surge to monthly high on mixed market indicators
When the value of this metric is positive, it means that long contract holders are currently paying a premium to short contract holders to keep their positions. Such a trend implies that the majority of the market shares a bullish sentiment.
On the other hand, a value of the indicator below the zero mark suggests that payments are flowing in the opposite direction: short positions pay long positions. Of course, the bearish mentality is the dominant force here.
Now here is a chart showing the trend in Bitcoin funding rates year-to-date:
The value of the metric seems to have been quite high for the past few days | Source: CryptoQuant
As illustrated in the chart above, bitcoin funding rates have surged over the past day as the cryptocurrency’s price rallied back above the $29,000 mark.
The rise suggests that new long positions have emerged in the market and the gap between short and long positions has widened. Following this increase, funding rates have reached extremely positive levels not seen since February this year.
By the time the metric hit its highs back then, the price of the cryptocurrency had hit a local top and started a steep decline. The reason the market reversed trend despite bullish futures traders may have been a long squeeze.
A “squeeze” is an event where a large price swing triggers a high volume of liquidations at once. Such liquidations ultimately only fuel the price action further, prolonging it and leading to more liquidations. Therefore, one can imagine liquidations happening in a cascading fashion during a congestion.
Whenever the futures market overheats, the likelihood of mass liquidation can increase. In general, a squeeze is more likely to affect the side that has the greater number of contracts. Of course, this aspect would be reflected in the subsidy rates.
Since the value of the indicator is currently very positive, a long squeeze could well occur. Should this actually happen in the near future, the Bitcoin market could collapse in a similar way as it did in February.
BTC price
At the time of writing, Bitcoin is trading around $29,500, up 1% over the past week.
BTC had rallied to $30,000 earlier today but has since fallen back to lower levels | Source: BTCUSD on TradingView
Featured image by Bastian Riccardi on Unsplash.com, charts by TradingView.com, CryptoQuant.com
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