Negative Funding Rates Hit Yearly High as Bitcoin Tests $76K

In brief

• Bitcoin funding rates have remained negative for over a month even as BTC touched $76,000, signaling heavy bearish positioning.
• A potential uptrend could see Bitcoin revisit $125,000 in 30-60 days, Decrypt was told.
• Despite bullish catalysts, analysts remain cautious, highlighting $80,000 as a key trigger level; failure risks a double-digit sell-off similar to that seen in May 2022.

Bitcoin’s recent rally toward $76,000 faces a dilemma, leaving investors split on its near-term outlook. Funding rates for Bitcoin—a fee paid by derivatives traders to maintain the alignment between spot and futures prices—have remained negative for over a month and hit the highest level this year, according to Coinglass data. Negative funding rates indicate investors are shorting the recent rally with the expectation of a reversal. The divergence between bearish derivatives positioning and bullish spot catalysts sets up a potential short squeeze—or a bull trap—depending on which side breaks first.

“Funding rates this negative tell you the market is heavily short,” Daniel Reis-Faria, CEO of ZeroStack, told Decrypt. The derivatives data directly contrasts with Bitcoin’s recent uptick, which was in part driven by bullish catalysts such as sustained ETF inflows, regulatory development surrounding the CLARITY Act, and the two-week ceasefire between the U.S. and Iran, Decrypt previously reported. “For a squeeze to gain real momentum, Bitcoin would need to break and hold above $80,000,” Illia Otychenko, lead analyst at crypto exchange CEX.IO, told Decrypt. Such a move could trigger “cascading liquidations of short positions and accelerate the rally,” Otychenko said.

Reis-Faria’s bullish forecast involves Bitcoin pushing close to “$125,000 in the next 30 to 60 days,” adding that a short squeeze would help this case. Bitcoin is currently trading at around $75,580, up 1.2% in the past 24 hours after having reached an intraday high of $76,114, according to CoinGecko data. Short squeeze or bull trap? At this stage, a short squeeze isn’t guaranteed. Options data reveal the 7- and 30-day 25-delta skew hovers between -2% to -4%, according to Deribit, suggesting that investors are paying a premium for downside protection via bearish bets. Additionally, the 0.72 put/call ratio is climbing, also reflecting growing demand for downside protection. “The pattern closely resembles late May 2022, when a similar squeeze setup instead preceded a double-digit sell-off,” Otychenko said. Despite the demand from ETF investors and improving geopolitical outlook, there is a “real risk this setup turns into a bull trap rather than a breakout,” he warned.  Experts who spoke to Decrypt also maintained a similar outlook, adding that the geopolitical risks haven’t subsided but merely paused. A resumption of the U.S.-Iran war could further push oil prices higher, awakening inflation concerns and subsequently reducing risk appetite, keeping Bitcoin and the broader financial markets capped.

On prediction market Myriad, owned by Decrypt’s parent company Dastan, users are increasingly optimistic on Bitcoin’s prospects. They now place a 67% chance on its next move taking it to $84,000 rather than $55,000, up from 54% at the start of the week. Myriad users are similarly positive about the geopolitical situation, putting a 66% chance on the number of ships transiting the Strait of Hormuz averaging more than 15 before May, up from 49% on Monday.