Bitcoin’s Negative Funding Rate: Are Bears in Control?
Bitcoin’s recent market activity has raised eyebrows. The cryptocurrency faced a 2.2% correction on September 11, following the release of U.S. consumer inflation data. Despite this, Bitcoin quickly rebounded to $56,500. This movement mirrored the S&P 500 index, which saw a 1.6% decline on the same day. The low U.S. Consumer Price Index (CPI) growth fueled hopes for an aggressive interest rate cut by the Federal Reserve.
Bitcoin and CPI Volatility
Bitcoin traders are skeptical about breaking the $58,000 resistance level, given the increased demand for bearish positions using Bitcoin futures contracts. The price action in the past few days shows a high correlation between Bitcoin and the U.S. stock market. This scenario is common during significant events like macroeconomic data releases or upcoming Federal Reserve decisions.
Investors hoped that lower-than-expected inflation would prompt the central bank to adopt a more aggressive interest rate cut. The U.S. Core CPI grew by 2.5% year-over-year in August, but prices increased by 3.2% when excluding food and gas. This data reduced the odds of a 0.50% interest rate cut on September 18, causing a negative initial reaction in the stock market.
The U.S. Congressional Budget Office (CBO) projects interest payments will surpass $1 trillion by 2025. The longer the Fed keeps rates elevated, the more pressure it adds to government spending. In the long term, this inflationary trend could benefit Bitcoin’s price, despite the recent failure to break above $58,000.
Traders Doubt Further Gains
Pinpointing Bitcoin’s inability to maintain bullish momentum solely on macroeconomic data seems inconsistent. Bitcoin’s last close above $60,000 was on August 27. Some analysts point to outflows from spot Bitcoin exchange-traded funds (ETFs), while others cite ongoing regulatory uncertainty for exchanges, services, and intermediaries.
Lack of Confidence in Leveraged Longs
From a trading perspective, the demand for leverage through Bitcoin futures contracts serves as a key indicator of investor risk appetite. When the market is optimistic, the funding rate on perpetual contracts turns positive. Rates between 0.2% and 1.2% per month generally suggest neutral market conditions, while rates below this range are considered bearish.
Data shows that the Bitcoin funding rate has been mostly negative since September 7, when Bitcoin briefly dipped to $52,600 following $311 million in leveraged long liquidations over two days. However, the cost to enter bearish positions using leverage remained below 0.6% per month, indicating no clear confidence from the bears either.
Options Market Shows Resilience
To determine if this sentiment is limited to perpetual futures, it’s useful to examine Bitcoin options markets. A negative skew indicates higher demand for call (buy) options relative to put (sell) options. Neutral markets typically display a -6% to +6% delta skew.
Bitcoin’s 25% delta skew currently stands at 4%, meaning put options are trading at a slight premium. More importantly, the metric remained relatively flat over the past week, indicating neutral sentiment despite the retest of the $53,000 support on September 7. Therefore, it would be incorrect to conclude that traders turned bearish solely due to the negative funding rate on perpetual contracts.
Future Outlook
While it is difficult to predict whether the lack of demand for leveraged longs will reinforce the $58,000 resistance in the near term, the chances of a bullish move toward $60,000 will likely depend on how the stock market reacts to the recent Bitcoin price movements.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
