Cryptocurrency DerivativesNews

New Data Shows That Bitcoin Derivatives Market Is Now Less Crowded

New market data has shown that the rate at which users in the crypto community are funding Bitcoin futures have declined drastically. This data was reported after an analysis website carried out a survey on the funding rate of Bitcoiin futures in crypto exchanges in the last two days.

If this data has one thing to prove, the Bitcoin derivatives market is becoming less crowded, which means the current rally in the crypto market can be sustained. A critical look into the Bitcoin futures market shows that the market tries to achieve balance in the crypto market by using a phenomenon tagged funding.

Buyers are currently controlling the market

Funding is a term used when the holder of a minority position in a derivatives market is compensated. The main goal is to achieve the much-needed balance in the market. A typical example is if the market has more than enough buyers or users who decide to hold long positions.

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To achieve the balance in the market, the short position holders or the sellers would have to be compensated from the position that the long position holders generate. In a realistic sense, if the long position on Bitcoin that is held by a trader is worth $100,000 and the funding rate is 0.01%, this automatically means that the short sellers will earn the funding rate in this case, which is 0.01% of the $100,000 every eight hours.

Buyers extremely control the market if the rate at which funding is made in the market is very high. This means that it is likely that a long squeeze happens in the market where users that hold long positions are forced into selling them due to the decline run of Bitcoin in the market.

When Bitcoin was trading around the $18,800 region, the funding rate across most exchanges was around 0.2%. With this in mind, the fold is now almost 10 to 20 fold higher than Bitcoin’s regular funding rate if the average funding rate across exchanges is considered.

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Analyst warns of volatility in the coming days

Since that period, experts and analysts have noted that Bitcoin’s funding rate has drastically reduced, with the major factor behind the decline being that major institutional investors are now using a new algorithm known as Time Weighted Average Price (TWAP).

Some analysts believe that small decline runs in the crypto market are one of the factors that make the Bitcoin futures market reset. Either way, one thing evident in the market presently is that the rate at which funding is made is now on the decline.

As of yesterday, Binance and Bybit Futures announced that their funding rates are now a little bit below 0.05%. This rate is said to be a bit high if one is considering the history of funding rates. To buttress this, an analyst, Sam Trabucco, has said that traders in the market should get ready to welcome volatility in the Bitcoin market in the coming days. To summarise his reason, the analyst noted that the rate at which users are funding Bitcoin is very high because people are showing so much interest in the digital asset, which has led to interests in futures on exchanges.

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Adebayo Owotunse (Nigeria)

Adebayo Owotunse is a versatile writer who has written hundreds of crypto articles for dozens of agencies across the years. He is now also the newest addition to the Tokenhell writers team.

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