Bitcoin has struggled to hold the $30,000 level for most of this week, mostly failing. While there have been mixed reactions from different parts of the market like ETFs, perpetual traders seem to have taken this as a sign to hold back on their activities. This has led to a continuation of the neutral or sub-neutral funding rates seen in recent weeks.
Bitcoin funding rates unchanged
For the past few months, Bitcoin funding rates have fluctuated around and below neutral levels. This has been the case in both market rallies and downtrends, although there have been periods of slight divergence when funding rates have rallied into positive territory, but even these have been short-lived.
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The last time the funding rate made a strong recovery was on May 12 on the Binance exchange, after funding rates re-trended at the neutral and below the neutral line. This is interesting as open interest in perpetual currencies had risen to new all-time highs during this period.
Funding rates fall below neutral | Source: Arcane Research
The 21 intervals of Bitcoin funding rates on the Binance and Bybit exchanges have been dominated by sub-neutral funding rates. A total of 16 funding rates were neutral, while 5 were neutral funding rates. All this time, the perpetrators have continued to trade the spot at a reasonable discount.
Leverage is still increasing
Although bitcoin funding rates have fluctuated, this has not impacted Open Interest (OI) performance. OI had declined significantly over the previous week, but last week BTC-denominated open interest saw its moves, adding 41,000 BTC. This brought the total denominated OI to a new all-time high of 290,000 BTC, surpassing the previous May 4 high of 282,000 BTC. Just a week after open interest dived more than 35,000 BTC.
Most often, the surge in open interest followed periods when funding rates were below neutral. During times when funding rates were neutral or above neutral, open interest has typically been in decline.
BTC fails to sustain above $30,000 | Source: BTCUSD on TradingView.com
This suggests that more volatility is likely to enter the market. This could happen regardless of whether the price recovers or falls further. However, the growth in open interest usually precedes a major recovery trend like the one seen during the July 26th short squeeze. So there will more than likely be a price rally to follow this increase in volatility.
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Bitcoin remains the largest cryptocurrency in the space with a market cap of $552 billion. It is up 5.10% in the last 24 hours and is trading at $29,200 at the time of writing.
Featured image from CoinDesk, charts from Arcane Research and TradingView.com
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