Key Points
- Despite a downturn in spot prices, Bitcoin and ether perpetual futures funding rates remain high.
- Analysts suggest the elevated funding levels indicate more potential downside for the cryptocurrency market.
Despite a 7% and 6% decrease in the spot prices of Bitcoin and ether respectively, their perpetual futures funding rates remain elevated.
The global cryptocurrency market cap has fallen by 5.8% to $2.5 trillion in the past 24 hours, as per CoinGecko data.
Elevated Funding Rates
Even with such a significant spot move, perpetual funding rates are still 20-30% on retail-focused exchanges. This indicates that speculators continue to add to leveraged longs on the dip, according to a recent market report by QCP Capital.
QCP Capital analysts suggest that the high funding levels could be a sign that the current price correction in the crypto market may continue. The forward curve is still surprisingly high. For example, a 23% risk-free yield can be locked in on an ether April spot-forward spread.
Downside Potential
André Dragosch, ETC Group Head of Research, agrees that current funding rates suggest more downside potential for both Bitcoin and ether. He believes any pull-back should be seen as a short-term opportunity to increase exposure ahead of the upcoming Halving in April.
Despite the spot downturn, the daily average Bitcoin funding rate for perpetual futures on major derivatives exchanges such as KuCoin, Huobi and BitMEX remains above 20%. Likewise, ether perpetual futures funding rates on multiple derivatives exchanges are even higher than those for Bitcoin.
Gordon Grant, a cryptocurrency derivatives trader, says the high funding rates indicate the persistence of speculator length. This is the extent to which speculators are willing to hold their positions in the market. He suggests that the high funding rates are the market’s way of incentivizing people to hold Bitcoin or ether spot and sell it forward.
Grant also noted that compared to the corresponding period in Bitcoin’s price cycle in 2021, there are currently very few functioning centralized finance (CeFi) lending markets available to alleviate funding pressures. As a result, “rate markets cannot play the role they once did.”
The largest digital asset by market cap increased by 5.3% in the past 24 hours and is now trading for $64,357. The GM 30 Index, representing a selection of the top 30 cryptocurrencies, has increased by 6.20% to 141.77 in the past 24 hours.
