Bitcoin & Ethereum Funding Rates Signal Continued Bullishness Despite Recent Selloff

Funding rates in the market for bitcoin (BTC) and ethereum (ETH) perpetual futures contracts reveal that most crypto derivatives traders continue to lean bullish, despite falling spot prices over the past 24 hours.

Judging from data by Coinglass, funding rates on the BTC/USDT perpetual contract on the major crypto exchange Binance have largely remained positive throughout July, despite stagnating and falling prices seen since July 19.

Binance BTC/USDT funding rates in July:

Source: Coinglass

The same has mostly also been the case for the ETH/USDT perpetual contract. The funding rate has remained positive even as ETH fell sharply on Monday this week, dropping from USD 1,600 to well below the key USD 1,500 level.

Binance ETH/USDT funding rates in July:

Source: Coinglass

A positive funding rate means that traders who are long need to pay a funding fee to those who are short, while a negative funding rate results in the opposite situation. Funding rates on perpetual futures are generally positive during bullish market conditions and negative during bearish conditions.

Binance usually ranks as the largest exchange by open interest in bitcoin perpetual futures. The exchange updates its perpetual funding rates every 8 hours.

Meanwhile, liquidations of leveraged bitcoin long positions reached USD 30.6m in the 12 hours from noon to midnight UTC on Monday. The event marked the highest level of liquidations since July 20, when over USD 55m of bitcoin longs were liquidated as bitcoin crashed from the USD 24,000 level.

BTC liquidations:

Source: Coinglass

Similarly, ETH also saw a relatively high level of liquidations on Monday, with USD 46m in ETH longs liquidated in the 12 hours from noon to midnight. As with bitcoin, the liquidations on Monday marked the highest level of ETH liquidations since the crypto sell-off on July 20.

ETH liquidations:

Source: Coinglass

The long liquidations in the ETH market came despite increased bullishness on the asset in recent days, fueled partly by a sense that the Merge – Ethereum’s transition from the proof-of-work (PoW) to the proof-of-stake (PoS) consensus mechanism – is nearing. Ethereum developer Tim Beiko earlier in July proposed September 19 as the tentative date for the Merge.

The news is thought to be at least partly responsible for a surge in the price of ETH from the USD 1,200 level to close to USD 1,600 between July 16 and July 18 as a massive amount of leveraged shorts were liquidated.

Commenting on the surging price at the time, a blog post published by the crypto derivatives exchange Deribit said that it “seems to be caused by a gamma squeeze,” or large-scale buying of short-dated call options. However, the post also warned that the price increase “lacks sufficient support.”

Sure enough, ETH fell sharply on Monday this week, with the sell-off continuing on Tuesday, seen by many other cryptoassets as well.

At 12:34 UTC on Tuesday, BTC was down 3.7% for the past 24 hours and 5.7% for the week to a price of USD 21,113. At the same time, ETH stood at USD 1,402, down 8.3% for the day and 10.6% for the week.

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