The data shows that the bitcoin shorts that had accumulated after the recent crash have now come under pressure after the asset price rebounded.
Bitcoin shorts are hit as the price shows a sharp recovery
According to on-chain analytics firm Santiment, Binance’s funding rate had turned sharply negative following the crash. The “funding rate” here refers to the number of recurring fees that the perpetual traders exchange between themselves.
When the value of this metric is positive, it means that the long traders are paying a premium to the short investors to hold their positions now. Such a trend suggests that the majority is currently in an optimistic mood.
On the other hand, negative readings of the indicator suggest that bearish sentiment prevails in the market as the short positions pay a fee to the long positions.
Now, here is a chart showing the trend of Bitcoin perpetual contract funding rate on cryptocurrency exchange Binance over the last month or so:
The value of the metric seems to have dropped sharply in the past few days | Source: Santiment on Twitter
As shown in the chart above, the Bitcoin perpetual funding rate on Binance has been mostly in positive territory over the last month, meaning that the majority of investors have been harboring bullish sentiment.
However, after the crash caused by the news of the SEC’s lawsuit against Binance, the indicator’s value crashed very quickly, hitting some deep red levels. During this price drop, a large number of long-term contracts were liquidated.
Events that result in such mass liquidation are called “squeezes”. Of course, the leverage flush during the crash was an example of a “long squeeze” since the vast majority of the contracts involved were long contracts.
As bullish sentiment was dissipated by the recent long squeeze, the funding rate plummeted. Apparently, traders now started betting that the price drop would spread even further, causing the indicator’s reading to become very negative.
At their peak, these red funding rates had reached their highest since March 10, 2023. Back in March, the metric had turned heavily negative after the asset’s value fell below $20,000.
However, after funding rates slipped deep into the red, the market experienced a short squeeze as the price rallied significantly. Something similar seems to have happened this time as well, as Bitcoin has once again rallied significantly.
Funding rates for perpetual contracts on Binance have also naturally turned positive again, suggesting that investors who prematurely shorted the asset have been liquidated.
BTC price
At the time of writing, Bitcoin is trading around $26,800, down 1% over the past week.
BTC has surged in the last day or so | Source: BTCUSD on TradingView
Featured image by Michael Förtsch on Unsplash.com, charts by TradingView.com, Santiment.net
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