Bitcoin Price Surge Expected as Negative Funding Rates Indicate, Insights from K33 Research
Bitcoin has been facing various challenges recently, with a prevailing bearish sentiment leading to negative funding rates in the perpetual swaps market, as detailed in a report by K33 Research. Analysts at the research firm suggest that this downward trend could potentially indicate a bottom for the cryptocurrency based on historical market data.
Authored by Vetle Lunde and David Zimmerman, the report highlights that the recent negative funding rates in the perpetual swaps market, which allows traders to speculate on Bitcoin’s price without owning the asset, have occurred for the first time since March 2023. Negative funding rates signify a scenario where traders pay to maintain long positions, reflecting a strong bearish outlook. K33 Research notes that this marks the seventh instance since 2018 that average 30-day funding rates have turned negative, with past occurrences often signaling market bottoms.
The analysts at K33 emphasize that in previous instances when 30-day average funding rates have shifted to negative, Bitcoin has exhibited robust performance in the subsequent months. Historical data reveals that average 90-day returns following such funding rate shifts have been at 79%, with a median return of 55%. This historical context forms the basis for the analysts’ optimistic stance on Bitcoin’s future performance as the year progresses.
Looking ahead, the K33 analysts foresee a potentially positive price movement for Bitcoin towards the end of 2024. They point to the increasing open interest in perpetual swaps, nearing levels not seen since late July, as a potential trigger for short squeezes. A short squeeze occurs when traders who have bet against Bitcoin are compelled to buy the asset to cover their positions, potentially driving prices higher.
In addition to on-chain data, the report delves into external factors that could influence Bitcoin’s price trajectory. The correlation between Bitcoin and the S&P 500 has surged to a 23-month high of 0.67, indicating that broader economic factors are likely to impact Bitcoin’s performance. The analysts anticipate that upcoming events such as the release of the Consumer Price Index (CPI) and the Federal Reserve’s Federal Open Market Committee (FOMC) meeting on September 18 could significantly influence Bitcoin’s short-term price movements.
Furthermore, the report considers various other factors that could contribute to Bitcoin’s potential recovery later in the year, including the anticipated Federal Reserve stance on interest rates, the US presidential election, repayments linked to the FTX collapse, and delayed effects of Bitcoin’s supply halving. The conclusion of the supply overhang and positive seasonality effects are viewed as additional factors that could potentially drive Bitcoin’s price higher.
