Quant Explains How Bitcoin Funding Rate Predicted The Latest Top
07 Abril 2022 - 2:00PM
NEWSBTC
A quant has explained how the Bitcoin funding rate (72 hour) may be
able to correctly signal tops and bottoms in the price of the
crypto. Bitcoin Funding Rate May Be Able To Indicate Tops And
Bottoms In The Market As explained by an analyst in a CryptoQuant
post, the 72-hour version of the funding rate looks to have been
effective at pointing out tops and bottoms in the BTC market. The
“funding rate” is the periodic payment that Bitcoin futures traders
(either long or short) have to make between each other. When the
value of this metric is negative, it means shorts are paying a
premium to the longs to keep their positions right now. Such values
show there are more shorts in the futures market at the moment, and
the majority sentiment is bearish. On the other hand, positive
values of the indicator imply longs are dominating the shorts
currently. Naturally, this trend means the overall sentiment is
bullish in the Bitcoin market currently. Related Reading
| Bitcoin Trading Volume Continues To Remain At Low Levels
Now, here is a chart that shows the trend in the BTC funding rate
(72 hour) over the past few months: The relation between the BTC
price and the funding rate | Source: CryptoQuant As you can see in
the above graph, the quant has marked the relevant points that help
establish a correlation between the Bitcoin funding rates and the
price. It looks like whenever the indicator had a rising value
along with the price observing a decline, a sharp correction in the
value of BTC took place shortly after. Related Reading
| Bitcoin Exchange Traded Products Near 1% Of Total BTC Supply
This is because investors kept on adding longs (hence why the
funding rate became more positive) when the price was instead going
down. Such a trade is quite risky as if the trend of decline
continues for long, then liquidation can quickly happen. A large
amount of long liquidations can sharply drive the price down, a
process that’s called a “long squeeze.” However, an interesting
fact here is that the funding rates still had a very low value,
which means there weren’t that many longs present. The analyst in
the post has pointed out that any small adjustment in the indicator
can affect the price and investor psychology during periods with
such volumes. The metric still seems to have been effective at
indicating tops recently as the latest correction in the price of
Bitcoin took place soon after a spike in the funding rate. BTC
Price At the time of writing, Bitcoin’s price floats around $43.7k,
down 7% in the past week. BTC's price plunges down | Source: BTCUSD
on TradingView Featured image from Unsplash.com, charts from
TradingView.com, CryptoQuant.com
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