Bitcoin (BTC) achieved its highest daily close in over two years on February 20th, but it faced a tough challenge at the $52,500 resistance level. As a result, it was rejected and fell below $51,000 on February 23rd.
The funding rate for Bitcoin futures contracts briefly showed an excess of demand for short positions on February 22nd, leading to speculation about potential further bearish movement.
Despite Bitcoin’s 33.5% year-to-date gain in 2021, some analysts believe that reaching a market capitalization of $1 trillion at $50,930 could represent a local top. While this level doesn’t have any inherent significance other than being a round number, it has attracted attention from mainstream media, potentially causing fear among investors.
The inflow of funds into Bitcoin exchange-traded funds (ETFs) is likely to have an impact on Bitcoin’s price. On February 22nd, the net inflow into US-listed Bitcoin ETFs amounted to $251 million, reversing the $36 million outflow observed the previous day.
Predicting demand for Bitcoin ETFs is nearly impossible, so it is important to look at trading metrics to determine if traders are leaning towards bearish sentiment after multiple failed attempts to sustain prices above $52,500. The funding rate for perpetual contracts, which are inverse swaps, briefly turned negative on February 22nd, indicating a preference for higher leverage being utilized by sellers. However, fluctuations in funding rates are common as market makers take advantage of specific snapshot times for rate arbitrage.
To confirm whether the absence of demand for leverage longs accurately reflects the market’s condition, it is necessary to cross-reference the data with other indicators. One such indicator is the demand for stablecoins in China, which is a significant signal for retail investors entering or exiting the cryptocurrency markets. The premium of USD Coin (USDC) versus the official yuan rate in China has remained above 2% since February 12th, reaching a peak of 3.5%. This indicates that retail money is entering cryptocurrencies. However, it should be noted that the last time the BTC 8-hour funding rate was above 0.03% (1.9% per month) was on January 2nd, meaning that retail traders using leverage missed out on the 30% gain from $40,000 to $52,200 in the 30 days leading up to February 20th.
Google search trends for “buy Bitcoin” confirm the lack of interest from retail traders despite the recent price gains. However, this data also suggests that there is still the potential for a new wave of investors driven by FOMO (fear of missing out).
In conclusion, the slightly negative futures funding rate for Bitcoin futures should not overly concern bullish investors. This article does not provide investment advice or recommendations, and readers should conduct their own research before making any decisions.