Funding rates suggest further declines are possible.
However, QCP Captial analysts suggested that the increased level of funding could indicate that the current price correction in the cryptocurrency market still has a long way to go. “The forward curve is still surprisingly high. Even now, you can secure a 23% risk-free rate of return on ether April spot forward spreads. Desks are still seeing strong interest in selling these spreads. We believe they can stay that way. We don’t expect it to rise for much longer, especially if the market continues to fall,” the QCP Capital analyst added.
According to André Dragosch, head of research at ETC Group, current funding ratios indicate a higher downside potential for both assets.
“This is, in my opinion, corroborated by other sentiment and positioning indicators as well, but any kind of pullback should be viewed as a short-term opportunity to increase exposure ahead of the upcoming April halving,” Dragosch told The Block.
High funding rate despite the spot economic downturn
Speculators still holding long positions
According to cryptocurrency derivatives trader Gordon Grant, high funding ratios indicate speculator length, or the degree to which speculators are willing to maintain their positions in the market. He added that the current high funding ratio is a sign of the presence of “speculators with diamond hands, but speculators nonetheless.”
Grant told The Block that recent trends suggest that tradable physical Bitcoin is limited relative to demand. “As spot Bitcoin ETF assets under management continue to expand and Bitcoin is effectively locked in the custodial state that underlies its stock, the value of Bitcoin that someone ultimately needs to hold to support a futures position becomes smaller. “High funding rates are a way to encourage people in the market to hold and pre-sell Bitcoin or Ethereum spot,” he added.
Grant suggested that compared to the corresponding period in the 2021 Bitcoin price cycle, there is currently little centralized finance (CeFi) lending market available to alleviate funding pressures. As a result, “interest rate markets can’t function as well as they used to,” Grant added.
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