Negative funding rates and recent price consolidation signal that Bitcoin may be gearing up for its next explosive move beyond $100K.
The price movements of the leading digital currency and related cryptocurrencies in 2025 have been characteristically volatile and largely consolidative. Specifically, Bitcoin (BTC) has been trading within the $90,000 to $100,000 range. Notably, earlier today, BTC dipped below $90,000 for the first time since November 18, only to rebound from this significant support level, climbing back to $92,000 at the time of writing.
As we get closer to the swearing-in ceremony of the new U.S administration, the mounting noise around macroeconomic headwinds is making the investors jittery, cryptos being no exception. However, looking at a key metric points to a scenario where Bitcoin might be gearing for the next leg of a bull run after this recent consolidation.
Bitcoin derivatives play a significant role in driving these volatile price swings. While instruments like futures and options account for only a small percentage of the overall market capitalization, their influence on the market is steadily growing. And this is where the key metric of future perpetual funding rate comes into play.
Understanding Perpetual Funding Rates
The perpetual funding rate is a key indicator of sentiment in the Bitcoin futures market. It is a fee paid by perpetual contract holders to keep the price of the perpetual contract pegged to the underlying spot price of Bitcoin. When the funding rate is positive, it indicates that long contract holders (those who are betting on the price of Bitcoin to go up) are paying short contract holders (those who are betting on the price of Bitcoin to go down).
This suggests that there is more demand for long contracts than short contracts, which can be seen as a bullish signal for the price of Bitcoin. Conversely, when the funding rate is negative, it indicates that short contract holders are paying long contract holders. This suggests that there is more demand for short contracts than long contracts, which can be seen as a bearish signal for the price of Bitcoin.
According to data by Glassnode (chart above), On January 9, 2025, Bitcoin's perpetual futures funding rate briefly dipped to -0.001%, marking its first negative reading this year. Historically, such negative funding rates have correlated with local price bottoms, as increased short interest can lead to short squeezes, propelling prices upward.
The price consolidation phase, like the one we have seen in the last couple of weeks, often precedes significant price movements, as it reflects a period where market participants accumulate positions before a breakout. Analysts suggest that the recent negative funding rate, combined with this consolidation, could indicate a forthcoming bullish trend.
As evident in the chart, the shift to a negative funding rate is suggestive that bearish sentiment may have peaked - potentially setting the stage for a bullish reversal. However, one should also consider other market factors, such as macroeconomic conditions and investor behavior. For instance, rising bond yields have recently exerted downward pressure on Bitcoin's price, indicating that external economic factors can influence market dynamics.
The perpetual funding rate and recent price movements suggest that Bitcoin may have found a potential bottom. However, markets are inherently unpredictable, and past trends are not always reliable indicators of future outcomes. Ultimately, these metrics serve as useful tools for analysis but should never be the sole basis for making investment decisions.
Disclaimer: This article is for information purposes only and should not be construed as investment advice. Please conduct your due diligence.
Originally published at Substack.