The price of Bitcoin has had quite the rollercoaster ride over the last seven days, rising from its early-week blues marked by a crash to below the $100,000 mark . The flagship cryptocurrency has roared back to life, running to as high as $108,000 in the past few days .
This recent resurgence has not particularly reflected on the blockchain, with the latest on-chain data suggesting that traders are not willing to bet on Bitcoin's price . A popular market analytics platform has now evaluated this scenario, putting forward the potential impact on price .
In a June 27 post on the X platform, on-chain analytics firm Glassnode revealed that the funding rate for Bitcoin, which has been on a decline over the past few months, seems to be stuck in a downward trend . The relevant indicators here are “Annualized Perpetual (perp) Funding Rates” and “Binance 3-Month (3M) Futures Annualized Rolling Basis” metrics .
The Annualized Perp Funding Rates is a key metric that tracks the periodic payments between long and short traders in the derivatives (perpetual futures) market . This indicator offers timely insights into the sentiment and leverage in the cryptocurrency derivatives market . When the funding rate is high or positive, it implies that the long traders are paying the traders with short positions . Typically, this direction of the periodic payment suggests a strong bullish sentiment in the market .
Meanwhile, a negative value of the metric means that short traders are paying long traders — suggesting a bearish market sentiment . On the other hand, the 3-Month (3M) Futures Annualized Rolling Basis estimates the annualized yield from buying a cryptocurrency on the spot market and concurrently selling the crypto's futures contract expiring in 3 months . Typically, futures contracts trade at a higher price .
While there has been a cautious approach to the market from traders, institutional flows into US-based Bitcoin exchange-traded funds and an improving macroeconomic climate have been quite a silver lining . Hence, even if the funding rates keep falling, but the macroeconomic environment and institutional capital inflow remain steady, the market could witness a short squeeze — where short traders are forced to close their positions . This potential scenario is even supported by the fact that the market tends to move in the crowd's opposite direction .
Glassnode noted that “Despite high futures activity, appetite for long exposure is fading, reflecting increased caution and possibly more neutral or short-side positioning,” . In essence, the declining funding rates and 3-month rolling basis indicate that short traders are continuously crowding the derivatives market .
A short squeeze occurs when a heavily shorted asset experiences a sudden and significant price increase, forcing short sellers to buy back the asset quickly to cover their positions and limit losses . In this scenario, buying activity may create a feedback loop, potentially driving the price even higher .