Crypto: Multi-day Negative Bitcoin Funding Signals ‘overcrowded’ Short...

Bitcoin’s daily funding rate has been deeply negative for days, reflecting heavy short positioning, but historical data also suggests that a squeeze on bears could be brewing.

Bitcoin (BTC) formed a new weekly low at $65,500 on Thursday, and the price has continued to trend lower over the past four days. Derivatives data also indicate that traders are heavily positioned to the downside.

Analysts said that this setup may lead to a sharp move higher that forces sellers to close their positions, even as other indicators hint that the move may not be straightforward.

The seven-day average funding rate for Bitcoin has turned strongly negative for the first time since March 2023 and November 2022.

Bitcoin liquidity and stablecoin flow data show renewed capital outflows, reducing the odds of a sustained squeeze.

Bitcoin’s daily funding rate has remained in deep red territory since the beginning of February, marking its most negative period since May 2023. The seven-day simple moving average (SMA) has flipped negative for the first time in nearly a year.

The funding rate is a periodic payment between the traders in futures markets. When it is negative, the short sellers pay long traders, signaling that the bearish positions are crowded, and vice versa.

Crypto analyst Leo Ruga said the current “red funding rate for days” signals that the bearish or short trade may be getting overcrowded. Ruga added:

Similarly, market analyst Pelin Ay highlighted that the funding rate recently dropped near -0.02 last Friday, with sharp negative spikes. Ay added that when sharp price declines coincide with negative funding, it can set the stage for a short squeeze, particularly if $58,000 holds as the local support.

Related: Bitcoin must close week at $68.3K to avoid 'bearish acceleration:' Analyst

Source: CoinTelegraph