Bitcoin and ether perpetual futures funding rates still elevated despite downturn in spot prices

Bitcoin and ether perpetual futures funding rates are still elevated despite the spot prices of each asset falling by 7% and 6% respectively, in the past 24 hours. The global cryptocurrency market cap fell 5.8% in the past 24 hours to $2.5 trillion, according to CoinGecko data.

“In spite of such a large spot move, perpetual funding rates are still 20-30% on the retail-focused exchanges. This means that speculators are still adding to leveraged longs on the dip,” Tuesday’s QCP Capital market report said.

Funding rates suggest more downside potential

However, QCP Captial analysts suggested that the elevated funding levels could indicate that the current price correction in the cryptocurrency market still has some way to go. “The forward curve is still surprisingly elevated. Even now, you can lock in a 23% risk-free yield on an ether April spot-forward spread. The desk is still seeing strong interest to sell these spreads. We expect they cannot stay so high for much longer, especially if market continues to move lower,” QCP Capital analysts added.

According to ETC Group Head of Research André Dragosch, current funding rates indicate that both assets have more downside potential.

“This is also corroborated by other sentiment and positioning indicators in my view. However, any kind of pull-back should be viewed as a short-term opportunity to increase exposure ahead of the upcoming Halving in April,” Dragosch told The Block.

High funding rates despite spot downturn

According to The Block’s Data Dashboard, the daily average bitcoin funding rate, annualized, for perpetual futures on major derivatives exchanges such as KuCoin, Huobi and BitMEX is still above 20%.

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Also, ether perpetual futures funding rates on multiple derivatives exchanges remain even higher than those for bitcoin, according to The Block’s Data Dashboard. The daily averages of ether funding rates, annualized, for perpetual futures on Gate.io, BitMEX, Kucoin and Huobi are all still above 20%. Ether funding rates remain exceptionally high on Gate.io, exceeding 45%, and on BitMex, surpassing 39%.

Speculators still holding long positions

According to cryptocurrency derivatives trader Gordon Grant, the elevated funding rates indicate the persistence of speculator length, the extent to which speculators are willing to hold their positions in the market. He added that current elevated funding rates signaled the presence of “diamond handed speculators, but speculators nonetheless.”

Grant told The Block that the latest dynamic also indicates that actual bitcoins available for trading are limited compared to the demand for them. “This is because spot bitcoin ETF assets under management continues to scale and bitcoin becomes effectively locked up in custody underlying those shares, so that the bitcoin that someone ultimately needs to hold to support futures positions is effectively dearer. The high funding rates are the market’s way of incentivizing people to hold bitcoin or ether spot and sell it forward,” he added.

Grant suggested that compared to the corresponding period in bitcoin’s price cycle in 2021, there are currently very few, if any, functioning centralized finance (CeFi) lending markets available to alleviate funding pressures. Consequently, “rate markets cannot play the role they once did,” Grant added.

The largest digital asset by market cap increased by 5.3% in the past 24 hours and is now changing hands for $64,357 at 12:21 a.m. ET, according to The Block’s Prices Page. 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.

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