Bitcoin Funding Rate on BitMEX Drops to All-Time Lows, Set-up for Short Squeeze?

Bitcoin volatility

Bitcoin [BTC] price closes the week on a negative note below the 200-Period Moving Average on a weekly scale. Moreover, economic panic due to the coronavirus seems to be getting worse as Fed announces extreme QE measures to address the emergency.

The price of Bitcoin [BTC] at 3: 45 hours UTC on 16th March 2019 is $5267.

btcusd
BTC/USD Weekly Chart on Bitstamp (TradingView)

The funding rate on BitMEX exchange is now in the negative 0.3-0.4% range daily. These levels of short have never been seen before on the exchange. Even during the the bear markets of 2018.

xbt funding rate on Bitmex
XBT Funding Rate on BitMEX

 

The last few months had seen extreme bullish penchant driving the market above $10,000. Nevertheless, the longs have been purged by more around $2.15 billion in liquidation during the last week on BitMEX alone.

Furthermore, the difference between longs and shorts on Bitfinex has dropped to 10,000 contracts from highs above 35,000 during February.

long short difference
BTC Long-Short Orders on BitFinex (TradingView)

Prominent derivatives and crypto trader, B.Biddles tweeted on the situation,

Short squeeze brewing I think. My guess is it gets instantly eaten up and used to fill more shorts. If not, might re examine my bias.

bitmex funding rate
BitMEX Funding Rate Indicator (TradingView)

 

In the past, crypto markets witnessed massive short squeeze during the run from $4,200 to $14,000 last year. While majority of markets expected correction around $6000-$8000, the parabolic run caused  a massive uptrend along with short liquidations.

B.Biddles also added that the derivatives algorithms were dominating the price action since last summer. The purge due to the virus has shifted the market back to organics. Nevertheless, the current economic environment is far from rational or organic, at the moment. The large scale sell-off to cash positions to address the emergency created by Coronavirus is adversely affecting all asset classes. Hence, a decline due to sell in the spot markets now could plunge BTC to new yearly lows.

The extremities in the funding rate, however, creates a huge threat of a squeeze which is characteristic of the Bitcoin derivatives market. Investors must look to resort to risk management techniques to prepare for tremendous volatility in the market.

Which factor do you think will dominate short-term PA, what is your long-term view? Please share your views with us.

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