Bitcoin price topped its all-time high at Christmas, hitting $ 24,681 on Binance. After BTC’s strong rally, traders and analysts are looking into bear and bull cases in the short term.
Market sentiment around Bitcoin remains overwhelmingly positive, but analysts have raised some concerns in the near future and as a result, the next step is not straightforward.
The funding rate of Bitcoin futures
Bitcoin (BTC) is up above USD 24,600 with a relatively small short squeeze. Only $ 95 million worth of short contracts were liquidated in the past four hours, suggesting that this rally was not triggered by a short squeeze. A short squeeze occurs when many short contracts or sell orders are liquidated in the futures market. This happens when sell orders are overused, which means that traders are aggressively selling Bitcoin with borrowed capital.
Since the rally was not caused by a short tightness, the futures market was dominated by buyers and holders of long-term contracts. This trend caused the funding rate on the major Bitcoin futures exchanges to reach 0.1%. Funding rate is a mechanism that futures exchanges use to incentivize long or short contract holders based on market sentiment. If there are more long contracts, the funding rate becomes positive, which means buyers have to incentivize sellers.
The average funding rate of the Bitcoin futures contract on most exchanges is 0.01%. When the funding rate is 0.01%, the trader must pay 0.01% of his position as an incentive for short sellers, who are the minority of the market. However, when the funding rate rises and traders buying Bitcoin have to pay high funding fees, it becomes less attractive to long Bitcoin.
Currently, as of December 25, the funding rate of Bitcoin futures is hovering at 0.1%. As such, traders and strategists say Bitcoin is at risk of a downturn as it has become less attractive to long BTC, at least in the short term. Mohit Sorout, the founder of Bitazu Capital, pointed against Bitcoin’s extremely high funding rate to suggest a downturn is likely, “Would be totally surprised if $ btc just kept going up from here.”
Edward Morra, a cryptocurrency derivatives trader, repeated a similar feeling. He added that many futures market traders started craving or buying Bitcoin after it rose around $ 24,400. After the decrease, he expects the financing rate to be adjusted after a local correction. Morra tweeted, “Derivatives traders didn’t buy the dip lower, but instead turned bullish back at the top, classic. Now chads will flush them, send bounties and funding to baseline and continue after a local correction. “
However, some traders disagree that the futures funding rate is paramount during a strong bull run. Salsa Tekila, a pseudonymous Bitcoin trader, noted that BTC’s funding rate in the 2017 bull market rose to 0.375%. Considering that the price is much higher, but arguably at an earlier stage of the rally, the trader must said the funding rate alone may not be accurate to predict a top:
“Going short to ATH during the bull trend of price discovery, based solely on financing in the hope of a Wyckoff top, seems extremely silly to me. Funding was 0.375 (max) for weeks in the 2017 bull trend. “
Given Bitcoin’s earlier historical price cycle, traders are more cautious about predicting a spike in the near term. For the foreseeable future, this leads to the bull case for BTC, which revolves around the theory that historical trends may not repeat during a bull market.
The short term bull case for Bitcoin
The short-term bull case for Bitcoin is based on two main factors: institutional accumulation and altcoin profits cycling to Bitcoin. Both trends are still ongoing as grayscale inflows continue to increase while altcoins lag BTC.
Ki Young Ju, CEO of CryptoQuant, said he expects Bitcoin to correct when institutional purchases slow down. But until that happens, which would be visible by assessing the assets under management of Grayscale and CME futures data, Ju said he would maintain his optimistic bias: “When institutional purchases stop, the price is likely to fall sharply. The new ATH would be determined by institutional investors when they stopped buying $ BTC. Until then, I’ll keep my bullish bias. “
According to for Grayscale, the company’s total assets under management hover at $ 16.3 billion, of which more than $ 14 billion comes from the Grayscale Bitcoin Trust (GBTC). GBTC’s AUM is considered a measure to measure institutional sentiment around BTC, as it is often the first entry point for institutions in the Bitcoin market, particularly in the United States.
The combination of Bitcoin’s strong institutional accumulation and the drying liquidity of the altcoin market supports Bitcoin’s short-term bull case. Santiment, an on-chain market analysis company, tweeted: “Liquidity has declined rapidly in the vast majority of # crypto assets outside of $ BTC and $ ETH as the year draws to a close.” This indicates that most interest in crypto is still centered around Bitcoin.
Based on Material Indicators exchange heatmaps, the next big resistances for Bitcoin are USD 25,000 and USD 30,000. There are stacked sell orders above the two levels, which can cause a temporary setback once those resistance areas are reached. Until then, with high institutional demand and the lagging altcoin market, sentiment around Bitcoin remains strong.