BTC Futures Funding Rate Resets Amidst Nearly 5% Plunge in Bitcoin

Crypto News– In the last 24 hours, the crypto market witnessed liquidations exceeding $300 million as Bitcoin (BTC) experienced a sharp decline of approximately 5%. This downturn has brought the previously soaring funding rate back down to more manageable levels.

BTC Futures Funding Rate Resets Amidst Nearly 5% Plunge in Bitcoin

The funding rate serves as a fee aimed at maintaining an equilibrium between the price of an asset’s perpetual futures contract and its spot price. In cases where perpetual futures contracts are trading at a premium, long traders pay funding fees to short traders, and vice versa. Over the past seven days, the funding rates for Bitcoin ranged from 0.21% to 0.38% for long traders, with fees climbing as high as 0.89% for altcoins like XRP.

Beyond being mere fees for price alignment, funding rates also function as indicators. Elevated positive Bitcoin funding rates suggest excessive optimism in the futures market, increasing the likelihood of unexpected crashes that lead to the liquidation of long positions.

As of Tuesday, the open interest in the futures market reached $33.67 billion, while Bitcoin’s options market saw a record-breaking open interest surpassing $17 billion. High open interest signifies substantial activity in the derivatives market (futures/options), indicating increased participation in larger derivative trades.