The Bitcoin (BTC) futures funding rate on Binance Futures overtook Deribit on Dec.18, according to data from CryptoQuant. Historically, when this happened, the dominant cryptocurrency saw a local top or consolidation.
The funding rate of major cryptocurrencies, including Bitcoin and Ether (ETH), rose considerably in the past 48 hours. This typically indicates that the futures market is overheating, which raises the probability of a pullback.
What comes next for Bitcoin?
Bitcoin has already seen a relatively mino pullback and some consolidation after its recent rally.
Within two days, from Dec. 16 to 17, the price of Bitcoin rose from $19,300 to as high as $23,800 on Binance. Following a 23% price spike, a 3% to 4% correction is relatively small, compared to historical corrections after a major rally.
A Bitcoin pullback was bound to happen as the futures funding rate surpassed 0.1% on Dec. 18 across major exchanges.
The Bitcoin futures market uses a system called “funding” to find balance in the market. If there are more long contracts in the market, the funding rate becomes positive. If so, buyers or long contract holders have to pay short-sellers, and vice versa.
On Dec. 18, the funding rate surpassed 0.1% on Bybit and other leading exchanges for the first time since the November rally to $19,000. At the time, after the futures market got overheated, BTC saw a significant pullback to $16,000.
A 20% to 30% pullback was likely at the time because the funding rate consistently remained high. This time around, the funding rate has cooled down comparably fast. As such, the chances of consolidation rather than a correction are higher, particularly as new retail investors still remain largely on the sidelines, other data shows.
A pseudonymous cryptocurrency trader pinpointed that the Binance Futures funding rate overtook Deribit.
Although this data does not have specific relevance, historical trends show that when it happens, Bitcoin tends to pull back. The trader said:
“Looks like most of the times Binance funding overtakes Deribit funding we get a sideways move or a local top. It could be a "retail FOMO peak signal.”
One reason behind this trend could be the significance of Binance Futures as a way to gauge the overall market sentiment.
When the price of Bitcoin sees a large price movement, Binance Futures often sees large liquidations because of its high open interest.
Binance Futures consistently remain as one of the top three futures exchanges by open interest alongside CME and OKEx.
Hence, when Binance Futures begins to show signs of overheating momentum, the market could turn cautious in the near term.
The near-term roadblock is $23,350
In the short-term, traders are pinpointing the $23,350 resistance level as the key roadblock for Bitcoin.
Technical analyst Cantering Clark said that if Bitcoin surpasses $23,350, an uptrend would likely ensue. He said:
“Yesterday's entire structure spent almost all of its time within prior day value. The prior day was balanced toward the tail end of the day. Looking very clean so far, good inside day break op. setting up if we clear 23350. Play the range until the change.”