Case in point, BitMEX’s funding rate \u2014 the rate that long position holders pay short positions (or vice-versa) every eight hours \u2014 has moved far into negative territory, suggesting that the price of BTC<\/a> is in for a steep drawdown, an analysis indicates.<\/p>\n While a bit more complicated than the following, the BitMEX<\/a> funding rate is effectively determined by how far the price of Bitcoin on BitMEX is trading over the “mark” price, the index price of BTC determined by aggregating data off the exchanges.<\/p>\n In uptrends, Bitcoin most often trades at a relatively strong premium compared to spot exchanges like Coinbase, as investors try and utilize leverage to make the most of rallies. In downtrends, the opposite is true.<\/p>\n The aforementioned trend was proven true late on Wednesday of this week when Bitcoin, after spiking to $9,700 from $9,100 in a day’s time, printed a funding rate of 0.14% every eight hours. The rate was only this high for a few hours, though it showed how exuberant the market was.<\/p>\n The relatively high funding rate has been underscored by strong capital inflows for BitMEX. Jai Prasad at Token Analyst and Seed Invest, two crypto startups, posted<\/a> data indicating that February 5th was the “largest netflow (inflow-outflow) [of Bitcoin into BitMEX] day of the year.”<\/p>\n According to a recent analysis<\/a> shared by economist and crypto analyst Alex Kr\u00fcger,<\/a> Bitcoin printing a funding rate of above 0.12% (equates to a crazy 131% when annualized) has historically been a precursor to relatively large drops.<\/p>\n More specifically, every time the aforementioned funding rate was seen, Bitcoin dropped an average of 7% in the five days that followed. Yes, there are exceptions to this trend (like in the early-2019 mania), though the clear trend is high funding rates are often precursors to a precipitous decline.<\/p>\n This boxplot shows what happens with bitcoin's price when Bitmex funding reaches levels as extreme as today's.<\/p>\n Bitmex funding can be used as a proxy for traders positioning.<\/p>\n Mean return after 5 days has been -7%.<\/p>\n This is free Alpha. Subscribe for more: https:\/\/t.co\/p1WcWwDOiJ<\/a> pic.twitter.com\/Gs0Hu6GWdl<\/a><\/p>\n — Alex Kr\u00fcger (@krugermacro) February 7, 2020<\/a><\/p><\/blockquote>\nWhat’s the BitMEX Funding Rate?<\/strong><\/h2>\n
Related Reading: Why This Top Analyst Says Bitcoin May Hit $15,800 Before 2020 Halving<\/a><\/h6>\n
Bitcoin Will Soon Drop 7%, the Funding Rate Predicts<\/strong><\/h2>\n
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