The Binance Futures funding rate surpassed Deribit on December 18 which has always led to Bitcoin (BTC) to pull back or consolidate. Notably, the BTC futures funding rate on Binance Futures surpassed Deribit according to data acquired from CryptoQuant. Historically, when that happens, the dominant crypto saw a local top or consolidation phase.
The funding rate of major cryptos like Bitcoin and Ether surged significantly in the last 48 hours. That normally shows that the futures market is overheating which increases the possibility of a pullback.
What Happens Next?
Bitcoin has so far experienced a relatively minor pullback and some form of consolidation after its recent rally to record highs. Within 48 hours from December 16 to 17, the bitcoin price surged from $19,300 to as high as $23,800 on Binance. After a 23% price surge, a 3% to 4% correction is quite small, compared to the major corrections that happened in the past after major rallies.
A BTC pullback was bound to happen since the futures funding rate surpassed 0.1% on December 18 across major crypto exchanges. The Bitcoin futures market uses a system known as ‘funding’ to get some balance in the market. In the scenario that there are more long contracts in the market, the funding rate becomes positive.
If that is the case, long contract holders or buyers have to pay the short-sellers, and vice versa is true. On Friday, the funding rate surpassed 0.1% on Bybit and several other leading exchanges for the first time since the November rally that pushed it above $19,000. At the time, after the futures market got overheated and bitcoin saw a major pullback to $16,000.
A 20% to 30% pullback was possible at the time since the funding rate constantly remained high. For now, the funding rate has cooled down relatively fast. As such, the opportunities of consolidation rather than a correction are quite higher; especially as new retail investors remain majorly on the sidelines, other data indicates.
A pseudonymous crypto trader pinpointed that the Binance Futures funding rate overtook Deribit. Even though this data does not have particular relevance, historical trends show that when it happens, bitcoin seems to pull back. The trader stated:
“Looks like most of the times Binance funding overtakes Deribit funding we get a sideways move or a local top. It could be a “retail FOMO peak signal.”
A primary reason behind the trend could be the significance of Bitcoin Futures as a way to determine the general market sentiment. When the bitcoin price sees a major price movement, Binance Futures normally see huge liquidations due to its high open interest.
Binance Futures remain among the top three futures exchanges by open interest alongside OKEx and CME.
Thus, when it starts to show signs of overheating momentum, the market may turn cautious in the near term.
The Short-Term Roadblock Has Formed At $23,350
In the near-term traders say that the $23,350 resistance level is the nearest roadblock for Bitcoin.
Cantering Clark, a technical analyst, said that if the flagship crypto surpasses $23,350 sustainably, an uptrend might ensue. He stated:
“Yesterday’s entire structure spent almost all of its time within prior day value. The prior day was balanced toward the tail end of the day. Looking very clean so far, good inside daybreak op. setting up if we clear 23350. Play the range until the change.”