Bitcoin Futures Markets Signal ‘Prime Buying’ Opportunity Soon

Authored by Martin Young via CoinTelegraph.com,

Bitcoin futures funding rates – periodic payments made between short and long traders – may be signaling a potential price correction for Bitcoin in the future, which could present “prime buying opportunities,” according to market analysts. 

In a post shared on X on April 3, an analyst from on-chain analytics firm CryptoQuant reported that record-long positive Bitcoin futures funding rates are signalling “strong bullish sentiment.”

Futures funding rates are the periodic payments that traders pay each other based on the difference between the price of the perpetual futures contract and the spot price of bitcoin.

If the Bitcoin futures prices trade above the spot prices, longs pay shorts the funding rate. Conversely, if the futures price trades below the spot, shorts pay longs the funding rate.

Bitcoin funding rates. Source: Crypto Quant

However, “historically, such optimism precedes price corrections,” said analyst’ Crypto SunMoon,’ before adding:

“A subsequent drop may offer a prime buying opportunity.”

CryptoQuant analyst ‘Maartunn’ also observed a rising Coinbase Premium, which he said was “a sign of U.S. institutions actively buying Bitcoin.”

This premium is the price difference between Coinbase compared to global exchanges.

[ZH: Related to this funding rate is the fact that Hedge funds and CTAs currently hold record bearish wagers (in futures) on the bitcoin price…

This is going to be fun pic.twitter.com/7XiK6xGJhP

— zerohedge (@zerohedge) April 4, 2024

The record buildup in short positions likely reflects hedge funds’ renewed interest in the carry trade, according to Markus Thielen, CEO of 10x Research.

“There is a massive demand from hedge funds to put on carry trades. Despite bitcoin’s -10% decline from the all-time high, the futures premium has remained in double digits, and hedge funds are taking advantage of these high rates,” Thielen told CoinDesk in an interview.

That said, CoinDesk notes that some hedge funds may have taken outright bearish bets as recent robust U.S. economic data and hawkish comments from the Fed officials weakened the case for rapid-fire interest-rate cuts in the near term.

Still, while the massive short-length of hedge funds is unprecedented, the record-long-length of institutional investors is just as remarkable…

Who has the most leverage to unwind if things turn against them?

Additionally, bitcoin’s market dynamics appear to have fundamentally changed with the advent of US spot BTC ETFs…]

…and that could shift the market’s perceived reaction the upcoming ‘halving’.]

Earlier this week, crypto derivatives tooling provider Greeks Live said that Bitcoin’s continued decline was “driving the crypto market down significantly, with panic spreading across the market and futures premium levels falling.”

BTC has fallen around 9% over the past week, hitting a low just below $65,000 on April 2. It currently stands 10.5% below its March 14 all-time high of $73,738 and it could drop further, according to IG market analyst Tony Sycamore.

In an April 4 post on X, the analyst predicted a drop to support at around $60,000, or possibly lower.

“Tuesday’s sell-off increases the likelihood that BTC is undertaking another leg lower (into support at $60/58k) to complete a three-wave correction from the $73,794 high before the uptrend toward $80,000 resumes.”

BTC/USD with 200-day SMA. Source: Tony Sycamore

Analyst and trader ‘Moustache’ told his 112,000 followers on X “It’s completely normal that we see some correction around the ATH of BTC.”

It was the same in 2020, he said before adding, “After that, the ATH was broken with force and a legendary bull run continued.”

BTC pulled back around 17% dropping to around $61,500 a week after its all-time high, it then recovered to reclaim $71,500 in late March, before retreating again in April.