Bitcoin (BTC) futures funding rate on Binance Futures surpassed Deribit on December 18, according to data from CryptoQuant. Historically, when this has occurred, the dominant cryptocurrency has featured a local cap or consolidation.
The funding rate of the major cryptocurrencies, including Bitcoin and Ether (ETH), increased considerably in the last 48 hours. This generally indicates that the futures market is overheating, increasing the likelihood of a pullback.
According to Coinmarketcap, currently the market capitalization of Bitcoin is $ 427,433,253,507.
Binance vs. Deribit financing. Source: CryptoQuant
What’s Next for Bitcoin?
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Bitcoin has already exhibited a relatively miniscule pullback and some consolidation after its recent rally..
In two days, from December 16 to 17, Bitcoin price jumped from $ 19,300 to $ 23,800 on Binance. After a 23% rise, a 3% to 4% correction is relatively small compared to historical corrections after a large rally.
A Bitcoin pullback was destined to occur, given that the futures funding rate surpassed 0.1% on December 18 on major exchanges.
The Bitcoin futures market uses a system called “financing” to find equilibrium in the market.. If there are more long contracts on the market, the financing rate becomes positive. If so, buyers or holders of long contracts have to pay short sellers, and vice versa.
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On December 18, the funding rate exceeded 0.1% on Bybit and other leading exchanges for the first time since the November rally to $ 19,000. At that moment, After the futures market overheated, the price of Bitcoin posted a significant pullback to $ 16,000.
Funding rates for perpetual BTC swaps. Source: Digital Assets Data
A 20% to 30% pullback was likely at the time because the funding rate remained consistently high. This time around, the funding rate has cooled down comparatively fast. Thus, the chances of consolidation rather than a correction are greaterparticularly as new retail investors continue to remain largely on the sidelines, other data shows.
A cryptocurrency trader trading under a pseudonym noted that Binance’s futures funding rate exceeded Deribit’s.
Although these data are not of specific relevance, Historical trends show that when this occurs, the price of Bitcoin tends to retreat. The trader
Looks like most of the times @binance funding overtakes @DeribitExchange funding we get a sideways move or a local top.
It could be a "retail FOMO peak signal".
Great tools on @cryptoquant_com
If you want to benefit from it sign up here:https://t.co/KRYeNmLGD1 pic.twitter.com/Dr69qtpFOm
— ama8999 (@ama8999) December 19, 2020
“It seems that most of the time Binance funding outpaces Deribit funding we have a sideways move or a local top. It could be a ‘retail FOMO peak signal.’
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One reason behind this trend could be the importance of Binance Futures as a way to measure general market sentiment.
When the price of Bitcoin exhibits a large price movement, Binance Futures often shows large sell-offs due to its high open interest..
Binance Futures consistently remains one of the top three futures exchanges for their open interest together with CME and OKEx.
Thus, When Binance Futures start to show signs of overheating, the market could become cautious in the short term.
The short-term hurdle is $ 23,350
In the short term, traders are signaling the $ 23,350 resistance level as the key hurdle for Bitcoin.
Viewing the Bitcoin exchange order book. Source: Cantering Clark
Technical analyst Cantering Clark said that if the price of bitcoin breaks above $ 23,350, an uptrend is likely.
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 day break op. setting up if we clear 23350.
Play the range until the change. $BTC pic.twitter.com/G1HkVrTLjV
— Cantering Clark (@CanteringClark) December 19, 2020
“The whole structure yesterday spent almost all of its time within the value of the day before. The day before balanced towards the end of the day. It looks very clean so far, a good rest operation would be established inside the day, if we cleared the 23,350. Reproduction of the range until the change “.
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