For the first time since September 2024, Bitcoin’s funding rate on Binance has plunged into deeply negative territory at -0.008%, signaling an aggressive shift in market sentiment.
What Are Funding Rates?
Funding rates are periodic payments exchanged between traders in perpetual futures markets. When the rate is positive, long position holders pay short sellers, indicating that the majority of traders are betting on price increases.
Conversely, a negative funding rate implies that short sellers are dominant and paying longs to maintain their positions.
Why Did Bitcoin’s Funding Rate Turn So Negative?
1. The recent decline in the funding rate to -0.008% is largely the result of aggressive shorting by retail traders.
2. This shorting behavior reflects fear rather than fundamental weakness. As has happened before, notably in September 2024, extreme negative funding rates can signal a market bottom driven by excessive pessimism and over-leveraged shorts.
Potential Consequences of Extremely Negative Funding Rates
1. Short Squeeze Risk
When funding rates become too negative, the market becomes prone to a short squeeze. If Bitcoin’s price suddenly rebounds, short traders may rush to cover their positions, fueling a rapid upside move.
2. Possible Trend Reversal
Historically, extremely negative funding rates have signaled local bottoms, as excessive bearish positioning often precedes a reversal.
However, a look at whale activity tells a different story.
As shown in the Whales Screener chart, more than $300 million worth of Bitcoin was withdrawn from exchanges on both May 1 and May 2, indicating continuous accumulation by large entities.
These outflows strongly suggest that whales are buying BTC at the same time retail traders are panic shorting.
Written by Amr Taha
