11 Jan 2021

Surging funding rates in the perpetuals market for bitcoin

The funding rates of the bitcoin perpetuals remain extremely high this week.
Source: Digital Assets Data
During the sell-off on Monday, Jan 11th, the aggregated funding rates once again reached levels around 0.15% per hour.Given that funding rates are calculated based on the difference in prices on the perpetuals contracts compared to spot, a high funding rate comes as an effect of a high premium in these contracts.In other words, rising funding rates amid bitcoin corrections suggests that traders in the perpetuals jump in trying to time the bottom.Interestingly, the funding rate peaks of both the Jan 4th correction and the Jan 11th correction have coincided closely with bitcoin bottoming out – implying that thus far, traders of the perpetuals have been successful in their quest of buying the dip.Buying the dip can work and be a profitable strategy as long as the market dip is only temporal. However, if the correction persists and grows, the leveraged exposure in derivatives could add more fuel to the fire and generate cascades of liquidations, similar to those of March 13th.
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