Bitcoin’s Funding Rate Discrepancy Signals Warning Signs as Price Approaches Critical Resistance Level

Over the past week, Bitcoin’s value has experienced a significant recovery, rising from a low of $74,000 earlier this month to now being priced over $95,000.

This upward trend indicates a 12% increase in just a week, hinting at a possible change in the short-term market outlook after a prolonged period of correction and fluctuations. However, some indicators suggest that investors are still wary, particularly in the derivatives market.

Bitcoin Sees Negative Funding Rates Again Amid Price Increase

An analyst from CryptoQuant, ShayanBTC, has observed a growing divergence between price movements and funding rates, especially concerning perpetual futures contracts. Funding rates indicate trader sentiment, reflecting the balance between long and short positions.

Despite Bitcoin’s price rally, Shayan pointed out that the recent behavior of funding rates suggests that many traders might be hedging against potential losses or lowering their exposure at the current price levels.

This divergence prompts questions regarding the sustainability of the ongoing rally and whether a temporary pullback might occur before further upward movement. Shayan noted that negative funding rates have reappeared, even as prices approach the $95,000 level.

This situation parallels a trend seen during the extended correction phase between March and October 2024, when funding rates consistently stayed negative during occasional price surges. Negative funding rates generally reflect a prevalence of short positions or hedging strategies among traders.

The analyst suggests that this renewed divergence may signal a lack of confidence in the current rally, as participants appear to be positioning themselves for a possible reversal at significant resistance points.

Shayan also observed similarities in the current market structure to previous instances where the market underwent temporary declines before resuming its upward trajectory.

In light of this, traders may be opting to minimize their risk exposure or implement distribution strategies by selling during price increases. The existence of cautious positions amid rising prices often points to market instability that could lead to a short-term correction.

Short-Term Holder Realized Price and Structural Insights

Additionally, Bitcoin’s Short-Term Holder Realized Price (STH-RP) is a key metric to evaluate the cryptocurrency’s macro trend. The STH-RP represents the average cost basis of coins held by recent buyers.

Analysis of on-chain data suggests that robust bull markets typically sustain price levels above the STH-RP. At this time, Bitcoin is hovering near this critical threshold, and its capability to maintain or surpass it will likely influence short-term market momentum.

The findings from Shayan indicate that while a brief pullback might be in the cards, such retracements—stemming from the divergence between rising prices and decreasing funding rates—could potentially fortify the overall market structure if they lead to healthier accumulations and the elimination of weaker positions.