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The sell-off in the bitcoin market continued as the $30,000 level was briefly breached yesterday. The ugly price action has many market participants worried that the bull market is over, and it is very likely that at the moment Bitcoin will consolidate in a range of around $30K.
Let’s take a look at what the derivatives markets are telling us.
permanent future funding
Traders on bitcoin derivatives exchanges flipped significantly lower, even as bitcoin approached the $30,000 level, as evidenced by negative funding.
For context, with funding at -0.02%, short positions pay long positions around 22% per year just for holding a position. It is notable that perpetual bitcoin futures have negative funding for extended periods of time, which means that the top-performing major asset owners are downside.
Below is the funding rate on perpetual bitcoin futures over the past year.
If one is looking for strong contraindications to allocating a large amount of money, negative financing and the curve of futures contracts in fall behind Two things to look for.
Annual payouts on three-month Bitcoin futures contracts are currently still valid contangoHowever, it has declined significantly from its high in April and is currently around 5% for exchanges that support Bitcoin, with the CME cash futures contract lagging.
What should be excluded from negative financing on perpetual futures and extremely low contango returns on BTC futures is that the reversal of Bitcoin’s bullish trajectory no longer exists.
In the early months of 2021, Grayscale was buying bitcoin hoards, MicroStrategy was hosting a virtual conference with thousands of companies on bitcoin as a reserve asset, and traders/speculators were eager to trade their bitcoins with bitcoin as collateral.
In hindsight, the ability to generate close to 50% annual returns while maintaining a neutral position in the market (not exposed to the upside or downside of bitcoin) is the local top, as there hasn’t been enough new capital flowing into the asset for acquisition It has massive arbitrage opportunities that exist during the months of March and April.