Bitcoin Long Squeeze Incoming? Funding Rates Surge Up
On-chain data shows the Bitcoin funding rates have observed a rise again, suggesting that another long squeeze may be in store for the crypto.
Bitcoin Funding Rates Show Relatively High Positive Value
As explained by an analyst in a CryptoQaunt post, the current positive funding rates may mean the price could observe a decline soon.
The “funding rate” is an indicator that measures the periodic fee that Bitcoin futures traders are paying each other.
When the value of this metric is greater than zero, it means long traders are paying a premium to short investors to hold on to their positions right now. This trend therefore suggests that the majority sentiment is bullish at the moment.
On the other hand, negative values of the indicator imply that a bearish sentiment is more dominant as shorts are paying longs currently.
Now, here is a chart that shows the trend in the Bitcoin funding rates (72-hour MA) in the year 2022 so far:
Looks like the value of the metric has surged up recently | Source: CryptoQuant
As you can see in the above graph, the quant has marked the points where the Bitcoin funding rates reached a peak during the last few months.
It seems like shortly after relatively high positive funding rates occurred, the price of the crypto observed a steep decline.
A long squeeze is a mass leverage flush event where long liquidations cascade together. Such a squeeze can sharply drive the price down and the above instances seem to have been marked by this squeeze.
A short squeeze, on the contrary, can rather uplift the price. The analyst therefore argues that the Bitcoin market will require negative funding rates if the price has to observe any real improvements.
However, as longs are currently dominating the futures market, a long squeeze will need to happen to take the funding rate down and pile up shorts.