Is Bitcoin’s Negative Funding Ratio a Sign That Bears Are In Full Control?

The Bitcoin (BTC) price suffered a 2.2% correction on September 11 after the release of the US Consumer Price Index data, but recovered to the $56,500 level within hours. This move closely tracked the S&P 500 Index, which fell 1.6% on September 11, and the US Consumer Price Index growth rate hit its lowest level in three years.

Bitcoin has weathered CPI volatility, but traders are skeptical that further gains are possible.

Bitcoin traders are skeptical that the $58,000 resistance level will be broken as demand for bearish positions using BTC futures contracts increases.

The price action over the last three days shows a high correlation between Bitcoin and the US stock market, at least in the short term. This scenario is often seen in important events such as expectations for macroeconomic data or upcoming US Federal Reserve decisions.

Investors had hoped that slightly lower inflation than the market consensus on September 11 would encourage the central bank to adopt more aggressive rate cuts. The U.S. core consumer price index (CPI) rose 2.5% year-over-year in August, but excluding food and gas, prices rose 3.2%.

From a trading perspective, this data has reduced the likelihood of a 0.50% rate cut on September 18, and has caused a negative initial reaction in the stock market. Opinions may differ on how persistent inflation will affect Bitcoin prices, especially when considering the cost of US debt financing.

The Congressional Budget Office (CBO) projects that interest payments will exceed $1 trillion by 2025. So the longer the Fed keeps interest rates high, the more pressure it will put on government spending. In the long run, this inflationary trend could be helpful for Bitcoin prices, despite its recent failure to break $58,000 on September 10.

However, it seems inconsistent to pinpoint the exact reason why Bitcoin has been unable to maintain its bullish momentum solely on macroeconomic data, especially considering that the last time Bitcoin topped $60,000 was on August 27. Some analysts point to the outflow of funds from spot Bitcoin exchange-traded funds (ETFs), while others cite ongoing regulatory uncertainty for exchanges, services, and brokerages.

Demand for leveraged Bitcoin longs is down, indicating a lack of confidence.

From a trading perspective, leverage demand through BTC futures contracts serves as a key indicator of investors’ risk appetite. When the market is bullish, the funding rate for perpetual contracts turns positive. Rates between 0.2% and 1.2% per month generally indicate neutral market conditions, while rates below this range are considered bearish.

According to data, Bitcoin funding rates have been largely negative since September 7. On that day, BTC briefly fell to $52,600 after a two-day $311 million leveraged long liquidation. However, the cost of entering a bearish position using leverage remains below 0.6% per month, showing that even the bears are not convinced.

relevant: Bitcoin net inflows hit $750 million, highest outflow since May

To see if this sentiment is limited to perpetual futures, it is useful to examine the Bitcoin options market. Negative skewness indicates greater demand for call (buy) options than put (sell) options, and neutral markets typically exhibit a delta skew of -6% to +6%.

Bitcoin’s 25% delta skew is currently at 4%, meaning that put options are trading at a slight premium. More importantly, the indicator has remained relatively flat over the past week, indicating a neutral sentiment despite retesting the $53,000 support on September 7. Therefore, it would be wrong to conclude that traders have turned bearish due to the negative funding ratio of perpetual contracts.

While it is difficult to predict whether the lack of demand for leveraged longs will strengthen the $58,000 resistance level in the short term, the likelihood of a bullish move towards $60,000 will likely depend on how the stock market reacts to recent Bitcoin price action.