Analyst: Bitcoin Funding Rate Briefly Turns Negative, Typically a Sign of a "Local Bottom"

BlockBeats News, January 10th, CoinDesk analyst James Van Straten stated that when Bitcoin approaches $100,000, market sentiment usually turns bullish, with investors trying to continue driving the bull market. However, the opposite can also happen, as when Bitcoin approaches $90,000, such as on Thursday, investors turn bearish.

Bitcoin's price movement tends to gravitate towards the maximum pain zone, and currently, this pain zone is the consolidation period between these two valuation ranges.

Bitcoin derivatives play a crucial role in these volatile price swings; derivatives such as futures and options, while only accounting for a small percentage of the total market value, are becoming increasingly influential in the market.

One indicator that traders closely monitor is the futures perpetual funding rate. This is the average funding rate (calculated as a percentage) set by exchanges for perpetual futures contracts. When the rate is positive, long positions periodically pay fees to short positions; conversely, when the rate is negative, short positions periodically pay fees to long positions.

During a bull market, Bitcoin often experiences a positive funding rate because traders believe the price will continue to rise. However, when the market becomes overheated, it usually loses momentum, and the price starts to fall, triggering a cascade of liquidations.

The same applies during a bear market, as the price bottom gradually forms over time, and prices can rebound quickly, causing traders to rush to close positions. At these moments, local bottoms are formed.

According to yesterday's data, the funding rate briefly turned negative at -0.001%, marking the first time this has happened this year and only occurring a few times since November 2024. This led to leveraged liquidations and a shift in market sentiment, followed by Bitcoin's price rebounding to above $94,000.

A negative funding rate does not always immediately result in a price rebound or bottom formation but can be observed along with other price chart tools and technical indicators to form a market view. A negative funding rate may also signal a continuation of the bear market rather than an immediate bottom. Similarly, a positive funding rate during a bull market may not necessarily indicate an overheated market but rather reflect sustained strong demand.