Bitcoin perpetual swaps are the most liquid futures instrument, allowing traders to speculate on the price of BTC using leverage. While there are always equal longs and shorts, the positioning of these contracts relative to the spot bitcoin price shows an up/down trend in the derivatives market.

When the price of a perpetual futures contract (a futures contract that never expires) is higher than the spot market price, the funding rate for a perpetual futures contract is positive, meaning longs pay short positions at a percentage of their nominal position size and vice versa.

The futures market usually shows an upward trend. For much of 2021, perpetual futures have consistently led the spot market by a wide margin, indicating strong bullish bias from speculators. Recently, funding has turned negative, reflecting continued futures trading below spot levels, and this is not the result of mass liquidations driving prices, but rather a shift in market sentiment and expectations.

Bitcoin price by funding rate futures contract eternal hours | Source: Deep Dive

In the last 24 hours, perpetual futures funding was -8.23% on an annual basis, meaning that short positions are paying longs 8.23%/year based on their notional position size. While it’s safe to say that the deepening pullback is due to the uncertain macroeconomic outlook and the Federal Reserve’s (Fed) “hawkish” stance, it bodes well for bulls. Bitcoin bulls continue to see negative funding rates.

financing rate futures contract per eternity hourly of bitcoin a daily average is calculated based on every year | Source: Deep Dive

Here is the same chart but averaged over a 7 day period to adjust for errors:

financing rate futures contract hourly perpetuity of bitcoin 7 days average on an annual basis | Source: Deep Dive

What to look for in the coming weeks is a spike in open interest funding rates, similar to what we saw in the summer of 2021.

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