April 18, 2024

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Cryptocurrency funding prices reset after Bitcoin's sharp decline from $69,000

Cryptocurrency funding prices reset after Bitcoin's sharp decline from $69,000

Bitcoin (btc) The overnight pullback from new highs removed excess leverage from the market, normalizing funding rates in the cryptocurrency futures market.

The leading cryptocurrency by market cap fell 10% to $59,700 after hitting a new all-time high above $69,000. The correction led to the forced closure of $1 billion worth of leveraged perpetual futures bets across digital asset markets.

The CoinDesk 20 (CD20), a broader measure of the market, rose to a high of $2,627 on Tuesday and has since retreated to $2,496.

Since then, annual funding rates, or the cost of holding leveraged bets in perpetual futures contracts tied to the top 25 cryptocurrencies, have reset to below 20%, down significantly from the triple-digit numbers observed a few days ago.

In other words, the overheated perpetual futures market has cooled, opening the doors to a longer-term move toward record highs. Funding rates surged above 100% early this week, as Bitcoin's strong bullish momentum saw investors jumping in, using leveraged products to maximize gains.

Exchanges use a funding rate mechanism to keep perpetual prices in line with spot prices. A positive funding ratio indicates that perpetual shares are trading at a premium to the spot price, indicating increased demand for bullish bets. As such, a high funding rate, as seen at the beginning of this week, is said to reflect excessive optimism, which is often observed at temporary market peaks.

A chart prepared by Velo Data shows that funding rates for the top 25 cryptocurrencies ranged from somewhat positive to 150% or more over the past week.

The latest reading for most currencies is less than 20%.

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According to John Glover, chief investment officer at Ledn, the market could continue to deleverage in the coming weeks, which could push the price of Bitcoin towards $40,000.

“The euphoria surrounding the recent rise in Bitcoin prices is very reminiscent of the last time we were trading at $65,000. While many people will point to the fact that the sell-off following November 2021 (and previously after April 2021) was due to bad market players, However, I contend that although it may have been precipitated by bad players, the sell-off was due to people becoming overly leveraged with unrealistic expectations of the fixed installment rising to $100,000, Glover said in an email.

“I think we are back in the same boat and we will see a correction back to the mid-to-low $40,000 area in the coming weeks. Things always look bullish at the peak,” Glover added.