Bitcoin futures contracts on April 18 showed a significant demand for short positions, which raised concerns about further bearish momentum. This trend was influenced by the lack of inflows into spot Bitcoin exchange-traded funds (ETFs) and the anticipation of rising interest rates in the United States, all contributing to a negative market sentiment.
Perpetual futures, a type of derivative that closely mirrors the price movements of regular spot markets, are often favored by retail traders. To maintain balanced risk exposure, exchanges implement a fee known as the funding rate every eight hours. This rate turns positive when buyers (longs) demand more leverage and negative when sellers (shorts) seek additional leverage. Typically, a neutral funding rate is around 0.025 per 8-hour period or 0.5% weekly. Negative funding rates, though uncommon, are considered highly bearish indicators.
The BTC funding rate turned negative on April 15 and again on April 18, reaching the lowest levels in over six months. This indicates a reduced appetite for long positions. This change in market sentiment is typically evident after significant price movements, such as the 13.5% decrease in Bitcoin’s price between April 12 and April 18.
Market dynamics often show that the strongest impacts occur when confidence among bears intensifies. For instance, some analysts interpret the double-top formation at $72,000 as a sign that the downtrend could continue until June.
From a broader economic perspective, recent U.S. data revealing stronger-than-expected inflation and robust retail sales have reduced investors’ aversion to risk. The Consumer Price Index rose 3.8% annually in March, surpassing the Fed’s 2% target, and retail sales increased by 0.7% year-over-year. A thriving economy reduces the likelihood of the Federal Reserve lowering interest rates, which tends to benefit fixed-income investments. Despite concerns about financial strains among lower-income households, a strong labor market has supported consumer spending.
The market sentiment is also influenced by the flows of Bitcoin spot ETFs. On April 17, there was a net outflow of $165 million from spot Bitcoin ETFs, marking the fourth consecutive day of withdrawals. This is in contrast to early April when these ETFs attracted $484 million, despite ongoing outflows from the Grayscale GBTC fund. Data suggests that Bitcoin bulls may have retreated from leveraging after a period of heightened optimism. In March 2024, there were seven instances where the funding rate exceeded 1.2% per week, leading to extreme volatility and significant liquidations.
For a deeper understanding of market sentiment, traders are advised to observe the Bitcoin options markets, where a growing demand for put options typically indicates a focus on neutral-to-bearish price strategies. Recent data shows that the demand for call options has exceeded that for put options by 35% over the past week. This suggests that there is currently no evidence in the Bitcoin futures and options markets to suggest an imminent price correction or worsening conditions. If anything, the data confirms that the brief dip below $60,000 on April 17 was insufficient to foster a long-term bearish sentiment.
This article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making a decision.