Holding long positions or leveraged bullish bets in the perpetual futures market tied to bitcoin has become more expensive than ever as bitcoin surpassed $45,000 for the first time since April 2022. Data from crypto services provider Matrixport reveals that global average perpetual funding rates reached a record 66% annualized during Asian trading hours.
Perpetuals are futures contracts that do not have an expiration date and use the funding rate mechanism to align prices with the current market price of the cryptocurrency. Positive funding rates indicate that perpetuals are trading at a premium to the spot price, resulting in long positions paying shorts to maintain their positions. Conversely, negative rates imply the opposite. Funding rates are collected by exchanges every eight hours.
Matrixport’s Head of Research and Strategy, Markus Thielen, stated, “This morning, the funding rate is reaching a new high at +66%. This means longs pay shorts 66% per year to stay long.” The funding rate has remained elevated throughout the holiday period, suggesting a bullish sentiment in the market. Thielen further noted that the sustained high funding rates during the holiday season indicate that crypto traders have remained optimistic and anticipate the approval of a bitcoin exchange-traded fund (ETF) in the near future.
However, it is important to note that excessively high funding rates can become burdensome for long positions when the market stops moving higher. This can lead to the unwinding of bullish bets and a subsequent price pullback. Despite this, as of now, bitcoin shows no signs of bullish exhaustion, with prices trading above $45,000. In the final quarter of 2023, the cryptocurrency experienced a rally of over 56%, driven by speculation surrounding the potential approval of one or more spot-based BTC ETFs by the U.S. Securities and Exchange Commission. According to Reuters, the decision on the ETFs may be announced as early as Tuesday.
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