The Bitcoin (BTC) futures funding rate on Binance Futures overtook Deribit on Dec.18, according to BTC/USD price analysis and prediction by CryptoQuant. Historically, when this took place, the dominant crypto saw a local top or consolidation.
The funding rate of major cryptocurrencies, including Bitcoin (BTC) and Ether (ETH), increased considerably in the past two days. This typically shows that the futures market is overheating, which raises the probability of a pullback.
What comes next for Bitcoin?
Bitcoin has already faced a relatively mino pullback and some consolidation after its rally.
Within two days, from Dec. 16 to 17, the price of Bitcoin increased from $19,300 to as high as $23,800 on Binance. Following a 23% price spike, a 3% to 4% correction is relatively small, in comparison to historical corrections after a major rally.
A Bitcoin pullback was bound to take place as the futures funding rate hit 0.1% on Dec. 18 across major exchanges.
The Bitcoin futures market uses a system called “funding” to find balance in the market. If there are more long contracts in the market, the funding rate is positive. If so, buyers or long contract holders need to pay short-sellers, and vice versa.
On Dec. 18, the funding rate surpassed 0.1% on Bybit and other major exchanges for the first time since the November rally to $19,000. At the time, after the futures market got overheated, BTC faced a significant pullback to $16,000.
A 20% to 30% pullback was possible at the time because the funding rate consistently remained high. This time around, the funding rate has cooled down comparably fast. As such, the chances of consolidation rather than a correction are higher, especially as new retail investors still remain largely on the sidelines, other data indicates.
A pseudonymous crypto trader pinpointed that the Binance Futures funding rate overtook Deribit.
Although this BTC/USD price analysis and prediction does not have specific relevance, historical trends indicate that when it happens, Bitcoin tends to pull back. The trader said:
“Looks like most of the times Binance funding overtakes Deribit funding we get a sideways move or a local top. It could be a “retail FOMO peak signal.”
One factor behind this trend could be the significance of Binance Futures as a way to gauge the overall market sentiment.
When the price of BTC faces a large price movement, Binance Futures often sees large liquidations because of its high open interest.
Binance Futures consistently remain as one of the top three futures exchanges by open interest alongside CME and OKEx.
Hence, when Binance Futures starts to show signs of overheating momentum, the market could turn cautious in the short term.