Bitcoin’s (Bitcoin) The overnight rebound from new record highs cleared the market of excess leverage and normalized funding rates in the crypto perpetual futures market.
The top cryptocurrency by market capitalization fell 10% to $59,700 after hitting a lifetime high above $69,000. This correction forced the termination of his $1 billion worth of leveraged perpetual futures bets across digital asset markets.
The broader market index, the CoinDesk 20 Index (CD20), rose to a high of $2,627 on Tuesday, but has since fallen to $2,496.
Since then, the annualized funding rate or cost of holding a leveraged bet on perpetual futures associated with the top 25 cryptocurrencies has reset to less than 20%, down from the triple digit numbers observed a few days ago. It has decreased significantly.
In other words, the overheated perpetual futures market has cooled, opening the door to longer-term record highs. Bitcoin’s strong bullish momentum pushed funding rates above 100% earlier this week as investors jumped in with both feet, using leveraged products to maximize profits.
Exchanges use a funding rate mechanism to match the perpetual price with the spot price. A positive funding rate indicates that perpetual bonds are trading at a premium to the spot price, indicating increased demand for bullish bets. As such, high funding rates like those seen earlier this week are said to reflect the over-optimism often seen at mid-market peaks.
According to Velo Data charts, the funding rates of the top 25 cryptocurrencies have ranged from slightly positive to as high as over 150% over the past week.
The most recent measurements for most coins are less than 20%.
According to John Glover, chief investment officer at Reddon, the market could continue to deleverage in the coming weeks, and Bitcoin prices could return to $40,000.
“The euphoria surrounding the recent rise in Bitcoin prices is very reminiscent of the last time we were trading at $65,000. will point to the fact that the decline that has occurred since April 2021 (since April 2021) is due to bad players in the market, but I would argue that although it may have been caused by bad players, , the sell-off was due to people becoming overleveraged with unrealistic expectations for a straight-line rise to $100,000,” Glover said in an email.
“I believe we are back on the same page and will be back in the mid-to-low $40,000 area in the coming weeks. Things always look bullish at peak times,” Glover added. Ta.
