There are a number of different indicators in the world that aim to approximate the current state of the market and predict possible movement and its direction. One of the suitable indicators in the field of cryptocurrencies is the BTC Funding Rate, which can relatively successfully predict future movements and market direction!
BTC Funding Rate
Analysts from the CryptoQuant platform have come closer to how the indicator works BTC Funding Rate. As history data show, the 72-hour version of this indicator appears to have been effective in pointing to peaks and lows in the cryptocurrency market.
“Funding Rate” is a regular payment that traders must make to each other on the futures market in the case of an open position – whether long or short. When the value of this metric is negative, it means that short positions pay a premium for longs to keep their positions. Such values also show that there are currently more shorts in the futures market and the majority sentiment is bearish – not very positive. On the other hand, the positive values of the indicator suggest that long positions over shorts currently dominate. Naturally, this trend means that the overall sentiment in the cryptocurrency market is growing. fomo.
As you can see in the picture above, almost every time these values were high, this parameter was corrected and “smoothed”. This is because investors were still adding long positions, so the funding rate was increasing. A large number of long liquidations can sharply reduce the price and represents a kind of snowball effect, where the liquidation of positions triggers more and more liquidations. This process is called “long squeeze”. This metric seems to have been still effective in indicating peaks recently, as the last correction in BTC’s price took place shortly after the increase in funding. This indicator is also suitable for indicating the local market bottom. Especially when the Funding Rate values are negative.
A suitable alternative to such an indicator is also the well-known and popular BTC Fear and Greed Index, which shows the current mood in the cryptocurrency market from a broader perspective, taking into account several factors.