Bitcoin Futures Funding Rates Show Traders Are Still Bullish Despite Rout

Despite the recent market rout, Bitcoin and Ethereum funding rates on perpetual futures contracts are still bullish, according to data from CoinGlass.

Funding rates are periodic payments made between traders who are long (optimistic) and short (pessimistic) in perpetual futures contracts. Unlike standard future contracts, which have an expiration date, perpetual contracts have no expiry. And so the funding helps keep the price of a perpetual futures contract close to the spot price of their underlying asset.

When funding rates are positive, as they are at the time of writing, traders who are long pay a fee to those who are short to keep their contracts open. On Tuesday morning, Bitcoin open interest-weighted funding rates are 0.0024%, according to CoinGlass.

Why is that bullish? It's an indicator that there are more traders opening long positions than there are short positions.

So the current market sentiment—as measured by Bitcoin derivatives activity—is still slightly more positive than it is negative. It's also a sign that the traders maintaining already-open long positions are confident their gains will eventually outweigh their funding costs.

There are other signs that diving prices haven't completely erased bullish sentiment among Bitcoiners.

Philip Swift, the founder of analytics platform Look Into Bitcoin, noted on Twitter that the recent BTC drop brought it down to its 128-day moving average. It's a technical analysis metric that became popular during the 2017 bull run, when the Bitcoin price would often bounce back up after touching the line, he explained.

If the BTC price were to follow the same pattern as it did then, then the 128DMA "typically, but not always, acts as good support in Bitcoin bull markets," he wrote.

At the time of writing, Bitcoin is trading for just over $65,000 after having sunk as low as $64,548.57—the lowest it's been in the past month.

There are other tepidly optimistic signs outside of crypto markets, too.

Algorithmic crypto trading firm Wintermute highlighted in a note recently that tides could be turning at the Federal Reserve, which is responsible for setting interest rates in the U.S.

Historically speaking, lower interest rates on treasury bonds encourages traders to allocate more assets to riskier assets, like stocks and cryptocurrency.

That's why the market tanked recently when new remarks from Minneapolis Federal Reserve President Neel Kashkari indicated the Fed might not cut rates until December. Up until recently, investors were holding out hope for a rate cut in September.

But maybe the Fed will bend to peer pressure from other major central banks, Wintermute reasoned.

“Current bearish sentiment may be short-lived as global central banks, like the Bank of Canada and the European Central Bank, have already initiated rate cuts, suggesting a global shift towards monetary easing,” the firm wrote.