Does Bitcoin’s negative funding rate signal that bears are in total control? – Cointelegraph

Bitcoin (BTC) prices fell 2.2% on September 11 following the release of the U.S. Consumer Price Index, but recovered to the $56,500 level within hours. This move was closely linked to the movement of the S&P 500 Index, which fell 1.6% on September 11 as U.S. Consumer Price Index growth hit its slowest level in over three years.

Bitcoin weathers CPI fluctuations, but traders doubt further gains are possible

Bitcoin traders are skeptical that the $58,000 resistance can be broken, given the increased demand for bearish positions using BTC futures contracts.

Price movements over the past three days suggest that there is a high correlation between Bitcoin and the US stock market, at least in the short term. This scenario is common during important events such as macroeconomic data or expectations for upcoming US Federal Reserve decisions.

Investors had been hoping that the Sept. 11 inflation reading, which came in slightly below market consensus, would prompt the central bank to cut rates more aggressively. The U.S. core consumer price index (CPI) rose 2.5% year-on-year in August, but excluding food and gasoline, prices rose 3.2%.

From a trading perspective, the data lowered the likelihood of a 0.50% interest rate cut on September 18, leading to a negative initial reaction in the stock market. Opinions may be divided on how sustained inflation will affect Bitcoin prices, especially considering the cost of debt financing in the United States.

The Congressional Budget Office (CBO) projects that interest payments will exceed $1 trillion by 2025. Therefore, the longer the Fed keeps interest rates high, the more pressure there will be on government spending. In the long term, this inflationary trend could be positive for Bitcoin's price, despite Bitcoin's failure to break $58,000 on September 10.

However, pointing solely to macroeconomic data as a reason for Bitcoin's inability to maintain bullish momentum seems inconsistent, especially considering that Bitcoin last closed above $60,000 on Aug. 27. Some analysts point to outflows from spot Bitcoin exchange-traded funds (ETFs), while others point to continued regulatory uncertainty for exchanges, services and intermediaries.

Leveraged Bitcoin Long Demand is Weak, Showing Lack of Confidence

From a trading perspective, the demand for leverage with BTC futures contracts is an important indicator of investors' risk tolerance. When the market is optimistic, the funding rate of perpetual contracts is positive. Rates between 0.2% and 1.2% per month generally indicate neutral market conditions, while rates below this range are considered bearish.

According to the data, Bitcoin's funding rate has been mostly negative since Sept. 7, when $311 million in leveraged long liquidations occurred in two days and BTC briefly dropped to $52,600. However, the cost of entering a bearish position using leverage remains below 0.6% per month, suggesting the bears also lack clear confidence.

Related: Net Bitcoin outflows reach $750 million, highest since May

To determine if this sentiment is limited to perpetual futures, it is helpful to look at the Bitcoin options market: negative skew indicates greater demand for call (buy) options compared to put (sell) options, with a neutral market typically seeing a delta skew of -6% to +6%.

Bitcoin's 25% delta skew is currently at 4%, meaning put options are trading at a slight premium. More importantly, the indicator has remained relatively flat over the past week, indicating neutral sentiment, despite retesting the $53,000 support on September 7. Therefore, it would be wrong to conclude that traders are only turning bearish because perpetual contract funding rates have gone negative.

It is difficult to predict whether a lack of leveraged long demand will strengthen the $58,000 resistance in the short term, but a potential bullish move towards $60,000 will depend on the stock market's reaction to the recent Bitcoin price movements.