The latest signal originating from the Bitcoin derivatives market may have signaled a possible “short squeeze”, a situation that may lead to a steep upward move in the price of Bitcoin, the world’s most famous cryptocurrency, data from K33 Research – a crypto research firm reveals.
The funding rate of Bitcoin perpetual futures is at the center of attention as it reveals the degree of bulls or bears on the side of speculators. On August 20th alone, the seven-day average annualized funding rate was, at the lowest point, since March 2023, a time when the US bank failures stirred up the market. This decline implies an increase in trading that is against Bitcoin’s price.
In their report, K33 analysts Vetle Lunde and David Zimmerman pointed out that “perpetual swap funding rates have remained negative over the past week whilst open interest has soared. ” This is a clear sign of a very avid short selling in the market which makes it to be in the right state for a short squeeze to emerge.
A short squeeze is a kind of market situation that arises when a sudden increase in price makes those who take short positions on the asset buy it to cover their positions and this increases the price even further. As of now, Bitcoin is in a bearish trend it lost considerable value in August and struggled to stay above $60,000. However, the global stock markets to reached record high levels, and gold is touching the new Freedom level.
K33 Research again pointed out that, as of this writing, the notional open interest in the Bitcoin perpetual has risen by almost 29,000 Bitcoin within the week. Further, the seven-day average annualized funding rate on August 20 was captured at 2.5%. Of course, to see such a picture, where the open interest is rapidly rising together with negative funding, is relatively rare, as noted by Lunde and Zimmerman.
Most perpetual futures contracts that are in high demand from crypto traders do not have any expiry date. While the aggregate open interest in bitcoin futures has been on the decline, there have also been higher volumes in the rather conventional bitcoin futures that are fixed on the CME Group Inc. based in Chicago, which may be indicative of the inflows from institutional investors in the United States.
Growing problems with Bitcoin in the past few weeks can be explained by fears that the United States authorities may sell seized tokens. Also, as any speech for any Financial official introduces new volatilities, traders have focused on the next speech of the Federal Reserve chair Jerome Powell, where he might comment on future rate cuts. According to the data at 07:12 on Wednesday in London there is a stable Bitcoin performance at the $59,550 level: It is still $14,250 below the historical maximum which was registered in March.
