According to a crypto analyst, two important Bitcoin (BTC) trading indicators, the funding rate and the 3-month annualized basis rate, suggest that the price is likely to increase soon. Will Clemente, co-founder of Reflexivity Research, stated in a post on X on May 7 that it appears as though Bitcoin is consolidating before its next upward movement. Both the funding rate and the Basis rate for Bitcoin have cooled off after briefly reaching negative levels.
Bitcoin’s funding rate is often used to gauge overall trader sentiment in the cryptocurrency market. Exchanges utilize this rate to balance out traders who enter long positions with those who choose short positions in order to mitigate the risk of overexposure. When traders with long positions dominate, the funding rate becomes positive, indicating their confidence in Bitcoin’s price increasing.
As of the time of writing, the OI-weighted funding rate stands at 0.0091%, recovering from a negative rate of -0.0050% on May 4, according to CoinGlass data.
“The Bitcoin funding rates still remaining this low, while Bitcoin is bouncing, makes me feel extremely bullish,” said pseudonymous crypto commentator Crypto Empire. Pseudonymous crypto trader Mister Crypto echoed this sentiment to their 98,000 followers on X.
The slight increase in Bitcoin’s price over the four-day period also aligns with the shift in the funding rate. Bitcoin rose by 1.11% to $62,361, according to CoinMarketCap data.
However, liquidation data contradicts this, suggesting that futures traders still lean bearish and expect a price drop in the near future. A 3.5% increase in price to the key level of $65,000 could liquidate $1.36 billion in short positions, whereas a 3.5% decrease to $60,500 would only wipe out $650 million in long positions.
Meanwhile, some traders have observed that Bitcoin’s annualized basis rate has risen to the higher end of the 5-10% neutral range on major exchanges such as Binance, OKX, and Deribit. The annualized basis rate measures the cost difference between a Bitcoin futures contract and the actual price of Bitcoin. Rates above 10% are often seen as a neutral-to-bullish signal by traders.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risk, and readers should conduct their own research before making a decision.