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In a historic development, Bitcoin surpassed the $45,000 mark for the first time since April 2022, creating a ripple effect in the perpetual futures market. Matrixport, a leading crypto services provider, reported that global average perpetual funding rates soared to an all-time high of 66% annually during Asian trading hours.
Understanding Perpetual Futures Market Dynamics
Perpetual contracts, a type of futures contract without a fixed expiration date, use a funding rate mechanism to align their prices with the current market value of the underlying cryptocurrency. As seen in this scenario, positive funding rates indicate that perpetual contracts are trading at a premium compared to the spot price.
In simpler terms, long positions incur a cost and pay short positions to maintain their open positions. Exchanges collect funding rates every eight hours to reflect ongoing market dynamics.
Markus Thielen, Head of Research and Strategy at Matrixport and Founder of 10x Research, shed light on the significance of this situation. Thielen stated, “This morning, the funding rate reached a new peak at 66%. This means that those in long positions are paying short positions an annual rate of 66% to remain long.”
Bitcoin’s Rise Continues Throughout the Holiday Season
An interesting observation is the continuous increase in the funding rate during the year-end holiday season. The chart shows that despite the celebrations, the Bitcoin funding rate remained high, indicating a consistent bullish sentiment among crypto traders. Thielen suggests that this optimism could be linked to expectations of a Bitcoin exchange-traded fund (ETF) being approved soon.
While high funding rates reflect the prevailing bullish atmosphere, it must be acknowledged that super high funding rates can become a challenge for long positions when the market reaches saturation.
This scenario typically triggers the unwinding of bullish-oriented positions, potentially leading to a pullback in prices. As Bitcoin continues to trade above $45,000, the market will closely watch how long positions manage this situation.
Bitcoin’s Rally Amid ETF Speculations
Recent data shows that Bitcoin maintains its position above $45,000, showing no signs of significant bullish fatigue. The cryptocurrency experienced a noteworthy rise of over 56% in the last quarter of 2023.
Market participants’ anticipation of the approval of one or more spot-based Bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission has fueled this rise. Reuters suggests that the decision could be announced as soon as Tuesday.
