After the price of Bitcoin (BTC) hit a local low of $ 43,000 on February 28, it rose 28% to hit the $ 57,000 level again on March 10. While the massive $ 5.9 billion sell-offs between Feb.21 and Feb.23 caused by excessive leverage appear to have gone, futures contracts hit an all-time high of $ 20.3 billion.
This time around, as Bitcoin surged to $ 57,000, there doesn’t seem to be any signs of FOMO-fueled retail buying (fear of missing out on profits), at least from a futures and volume indicator perspective.
While the refinancing rate stabilized at neutral levels, spot volumes stagnated, indicating that recent growth in open interest in futures is healthy.
As shown above, the total open interest in BTC futures has risen to a new all-time high of $ 20.3 billion. This event is often perceived as bullish, even though long and short positions are the same at all times. However, a yellow flag must always be hoisted if an increase in this metric is followed by a high financing rate for perpetual futures.
The financing rate is initially neutral
Perpetual futures are the tool of choice for retailers looking to leverage their liquidity and hassle-free expiration date.
In order to maintain a balanced risk, the futures exchanges calculate long positions (buyers) or short positions (sellers) for perpetual futures every eight hours. This indicator, known as the funding rate, turns positive when long positions require the greatest leverage.
Insufficient margin longs are often liquidated when their positions are forcibly closed. Therefore, excessive leverage is the main catalyst for significant price corrections.
As shown in the graph above, the 8-hour rate hit 0.20% at the end of February, which is 19.7% per month. This rate is very expensive for those long into perpetual futures, but the effect wore off when the price of Bitcoin fell below $ 48,000 on February 22nd.
On the other hand, the current 8 hour funding rate of 0.05% is standard and expected in healthy markets. This indicator corresponds to a monthly rate of 4.6% and shouldn’t be a problem for leveraged buyers.
The spot exchange volume did not increase
Had the retail FOMO started when Bitcoin had hit its all-time high of $ 58,300, the cash volume would have been positively impacted.
As we can see, the recent $ 8 billion average 5 day volume is pretty flat compared to the past two weeks. Hence, there is no evidence that retail investors are desperate to buy BTC spot or perpetual futures contracts.
These data suggest that there is room for further appreciation in Bitcoin price as institutional clients continue to accumulate BTC in large sums, despite the 70% gain so far this year.
While various analysts suggest that this activity would spark a hasty purchase by retail investors, there is currently no definitive evidence of this.
The Digital Currency Group’s decision to buy $ 250 million in shares of Grayscale’s Bitcoin Trust is likely to bring some relief, and so does the upcoming launch of JPMorgan’s cryptocurrency exposure basket.
These developments could be interpreted by retailers as the “seal of approval” of one of the largest banks in the world.
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