According to K33 Research, the funding rate for BTC perpetual futures contracts has reached its lowest level since March, suggesting a “short squeeze”
A Bitcoin (BTC) derivatives market indicator suggests a growing risk of a “short squeeze,” a phenomenon that could trigger a sharp rise in the price of the largest cryptocurrency on the market, experts at analytics firm K33 Research said in a report.
A short squeeze occurs when the price of an asset that has been widely sold short suddenly rises, forcing short sellers to buy back the asset to limit their losses. This buyback triggers a ripple effect that quickly drives up the price.
The warning sign indicated by the analysis company is the funding rate of Bitcoin perpetual futures contracts (which have no expiration date). This metric indicates the difference between the reference price of the perpetual futures market and the index price, which is equivalent to the spot market of the digital asset.
K33 said the seven-day annualized funding rate recorded on Tuesday (20) was the lowest since March 2023 - when US bank failures rattled investors - indicating a prevalence of negative bets.
“Perpetual swap funding rates hit negative average levels last week, while open interest rose sharply,” K33 analysts Vetle Lunde and David Zimmerman wrote in a note. “This suggests aggressive shorting, structurally creating a setup ripe for a short squeeze.”
K33 said notional open interest — or outstanding contracts — in the perpetual market increased by the equivalent of nearly 29,000 Bitcoins last week. The seven-day average annualized funding rate yesterday was 2.5%. Such a rapid increase in open interest, coupled with a negative funding rate, is a comparatively rare scenario, Lunde and Zimmerman wrote.
Perpetual futures are popular among cryptocurrency speculators because they have no set expiration date. Activity has also been increasing on the more traditional Bitcoin futures market hosted by Chicago-based CME Group, which could be an indication of the re-engagement of U.S. institutional investors.
Bitcoin has been falling recently amid the global panic that gripped global markets earlier this month. Investors are now awaiting economic data due out this week that could provide further clues about the future course of interest rates in the US.
At 3 pm this Wednesday (21), the Federal Reserve (Fed, the country's central bank) will release the minutes of its last meeting in September. The revision of labor market data for the last 12 months up to March will also be released.
On Thursday (22), the Jackson Hole Economic Symposium begins in Wyoming, which will bring together representatives of central banks from around the world, with the participation of Jerome Powell, president of the Fed, on Friday (23).
“What could be a ‘victory’ for the risk market now is that some Fed officials are showing more concern about how high interest rates are affecting the labor market. Until then, the speech had a much more ‘hawkish’ tone than what was seen this week,” said Beto Fernandes, analyst at Foxbit.
Bitcoin is trading at $59,338 around 8 a.m. this morning, down 2.90% in the last 24 hours. Ethereum (ETH) and major altcoins are also trading in the negative. Cryptos with low market caps are trading mixed.#bitcoin #Binance #bnb
