A stable funding rate paired with a record-high $20.3 billion open interest on BTC futures suggest that the current rally has room to extend higher.
After hitting a $43,000 local low on Feb. 28, Bitcoin (BTC) price rallied 28% to retake the $57,000 level on Mar. 10. As the Feb. 21 to Feb. 23 massive $5.9 billion liquidations caused by excessive long leverage seem long gone, futures contracts reached a $20.3 billion all-time high.
This time, as Bitcoin rallied to $57,000, there seems to be no signs of retail FOMO (fear of missing out) buying, at least from the perspective of futures and volume indicators.
While the funding rate stabilized at a neutral level, spot volumes stagnated, signaling that the recent growth in the open interest on futures is healthy.
As shown above, the aggregate futures open interest on BTC has risen to a new all-time high at $20.3 billion. This event is usually perceived as bullish, even though longs and shorts are matched at all times. However, a yellow flag should be raised whenever an increase of this metric is followed by a high funding rate on perpetual futures.
The funding rate is neutral for n
Perpetual futures are the preferred instrument for retail leverage traders due to their liquidity and hassle-free expiry date management.
To keep a balanced risk-exposure, derivatives exchanges charge either perpetual futures longs (buyers) or shorts (sellers) a fee every eight hours. Known as the funding rate, this indicator will turn positive when longs are the ones demanding more leverage.
Longs with insufficient margin are usually liquidated as their positions are forcefully terminated, so excessive leverage is the primary catalyst for substantial price corrections.
As depicted above, the 8-hour fee reached 0.20% in late-February, equivalent to 19.7% per month. This rate is quite costly for those long on perpetual futures, but the effect vanished as the Bitcoin price crashed below $48,000 on Feb. 22.
On the other hand, the current 0.05% funding rate per 8 hours is standard and expected in healthy markets. This indicator equates to a 4.6% monthly fee and shouldn’t be problematic to leveraged longs.
Spot exchange volume didn’t spike
Had retail FOMO kicked in as Bitcoin approached its $58,300 all-time-high, spot exchange volumes would have been positively impacted.
As shown above, the most recent $8 billion 5-day volume average is pretty much flat compared to the past couple of weeks. Thus, there is no evidence of retail investors desperately buying spot BTC or perpetual futures contracts.
This data suggests room for further price appreciation from Bitcoin as institutional clients continue to heavily stack BTC regardless of its 70% gain year-to-date.
Although multiple analysts may suggest that this activity would trigger fast buying from retail investors, there’s no definitive proof of this at the moment.
Digital Currency Group’s decision to buy $250 million of Grayscale Bitcoin Trust shares will likely bring some relief, and the same can be said for the upcoming launch of JPMorgan’s crypto exposure basket.
These developments could be interpreted by retail as a ‘stamp of approval’ from one of the world’s largest banks.
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