The price of Bitcoin surpassed its all-time high on Christmas, hitting $ 24,681 on Binance. After BTC’s strong rally, traders and analysts are investigating short-term bear and bull cases.
Market sentiment regarding Bitcoin is still largely positive, but for the foreseeable future analysts have raised some concerns, so the next step is not clear.
The funding rate of Bitcoin futures
Bitcoin (BTC) surged over $ 24,600 with a relatively small short squeeze. Short contracts worth only $ 95 million have been 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 on the futures market. This happens when sales orders are overfunded, which means traders are aggressively selling Bitcoin with borrowed capital.
Since the rally was not triggered by a brief press, the futures market was dominated by buyers and long contract holders. This trend resulted in the refinancing rate on the major Bitcoin futures exchanges reaching 0.1%. The funding rate is a mechanism that futures exchanges use to motivate long or short contract holders based on market sentiment. When there are longer contracts, the funding rate becomes positive, which means buyers need 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 their position as an incentive for short sellers who are the minority of the market. However, as the funding rate increases and merchants who buy bitcoin have to pay high funding fees, it becomes less compulsory for long bitcoin.
Currently, the refinancing rate for Bitcoin futures is 0.1% as of December 25th. Traders and strategists therefore say that Bitcoin is at risk of pullback as it has become less convincing for long BTC, at least in the short term. Mohit Sorout, the founding partner of Bitazu Capital, pointed to Bitcoin’s extremely high funding rate to point out that a withdrawal is likely: “Would be extremely surprised if $ btc continued to rise from here.”
Edward Morra, a cryptocurrency derivatives trader, repeated a similar sentiment. He added that many traders in the futures market started craving or buying bitcoin after it hit around $ 24,400. After the decline, he expects the funding rate to reset after a local correction. Morra tweeted: “Derivatives traders did not buy the dip lower, but made Omega bullish again at the top, classic. Now spot chads will flush them, send rewards and funds back to baseline, and proceed after a local correction. “
However, some traders disagree that the futures funding rate is of paramount importance during a strong bull run. Salsa Tekila, a pseudonymous bitcoin trader, found that the funding rate of BTC in the bull market reached up to 0.375% in 2017. Given that the price is much higher but arguably earlier in the rally, the trader said the funding rate alone may not be accurate to predict a spike:
“Selling ATH short during the bull trend in pricing which is based solely on funding while hoping for a Wyckoff top seems extremely stupid to me. In the bull trend in 2017, the financing was 0.375 (maximum) for weeks. “
Given Bitcoin’s historical price cycle so far, traders are more cautious about forecasting a high in the short term. This leads to a bull fall for BTC for the foreseeable future, which revolves around the theory that historical trends may not repeat themselves during a bull market.
The bull case for Bitcoin in the near future
The short-term bull fall for Bitcoin is based on two main factors: institutional accumulation and altcoin profits flowing into Bitcoin. Both trends continue as grayscale inflows continue to increase while altcoins lag behind BTC.
CryptoQuant CEO Ki Young Ju expects Bitcoin to correct if institutional buying slows down. Until that happens, however, which emerges from Grayscale’s valuation of its assets under management and CME futures data, Ju said he will maintain his bullish bias: “If the institutional buying stops, the price will likely fall sharply. The new ATH would be determined by institutional investors if they stopped buying BTC. Until then, I will maintain my bullish bias. “
According to Grayscale, the company’s total assets under management are $ 16.3 billion, of which over $ 14 billion comes from the Grayscale Bitcoin Trust (GBTC). GBTC’s AUM is viewed as a measure of institutional sentiment regarding BTC as it is often the first entry point for institutions to enter the Bitcoin market, especially in the US.
The combination of bitcoin’s strong institutional accumulation and the drying liquidity of the altcoin market supports the short-term bull fall for bitcoin. Santiment, an on-chain market analyst, tweeted, “Liquidity was falling rapidly on the vast majority of #crypto assets outside of BTC and ETH by the end of the year.” This suggests that most of the interest in crypto is still on Bitcoin focused.
Based on exchange heatmaps of material indicators, the next major resistances for Bitcoin are at $ 25,000 and $ 30,000. There are stacked sell orders above the two levels that can cause a temporary pullback once these resistance areas are reached. Until then, sentiment on Bitcoin will remain strong given the high institutional demand and the lagging altcoin market.