Beneath the bustling market, a silent storm is brewing.
According to Glassnode data, the 7-day average funding rate in the crypto market has continued to decline since the end of January and is currently only 0.004%, a 85% drop from its peak in December last year.
What does this data mean? The funding rate represents the leverage cost in the market. Its decline indicates that the highly leveraged longs in the market are disappearing and funds are unwilling to pay for higher risks.
What’s even more frightening is that if no new leveraged funds enter the market, the market may remain volatile or even usher in a bigger adjustment!
Is the crypto market really cooling down? Is the bull run just getting started and about to fizzle out?
1. Funding rate plummeted by 85%? The market is avoiding risks!
Funding Rate is a key indicator in the futures market. Its level reflects the supply and demand relationship of long and short funds in the market.
🔹 High funding rate ➜ Bulls in the market are willing to pay higher costs to hold positions, which usually means that market sentiment is optimistic and funds are pushing up prices.
🔹 Low funding rates ➜ indicate that there are fewer leveraged longs in the market, funds are unwilling to bear higher financing costs, and market sentiment tends to be cautious.
Now, the funding rate has plummeted 85% from its high point in December last year and is close to the market low! What does this mean?
1) Bulls exit and the market loses momentum
The reduction in leveraged longs means a decline in buying momentum, and prices are likely to enter a period of volatility or even adjustment.
2) Market sentiment is cautious and investors are reluctant to increase their positions rashly
Big funds are waiting and watching, and they are unwilling to continue to increase leverage at high levels, which means that the market may lack the momentum to continue to rise.
3) Low fees = low risk? No! Low fees often mean a precursor to a new round of volatility
When market leverage is reduced, volatility will temporarily decrease, but once new catalysts emerge, the market's reaction will be more violent.
2. Why did leveraged funds suddenly disappear? What is the truth behind it?
(1) Regulatory pressure: leverage in the contract market is being “squeezed”
Recently, many governments around the world are strengthening their supervision of the crypto market, especially targeting highly leveraged exchanges.
• The U.S. SEC has stepped up its supervision of exchanges such as Binance and Kraken, restricting contract trading for some users.
• The EU MiCA regulations will impose stricter monitoring on leverage behavior in the crypto market.
• Asian markets (including mainland China and South Korea) are also increasing their crackdown on high-leverage transactions, and some investors are choosing to withdraw.
The reduction in leveraged funds directly led to a contraction in the market’s short-term volatility and a sharp drop in funding rates!
(2) The market is waiting for “Bitcoin’s second takeoff”
The launch of the Bitcoin spot ETF has allowed a large amount of funds to enter the spot market rather than the highly leveraged contract market.
Institutional funds prefer long-term holdings rather than short-term leveraged trading, which has led to the outflow of short-term leveraged funds from the market.
In addition, the market is waiting for clearer bull market signals, such as the Federal Reserve's interest rate cut and BTC breaking through 100,000. Before these signals appear, funds remain cautious, resulting in a reduction in leveraged funds.
3. What will happen to the market after the funding rate drops?
📉 Possible short-term impact: The market enters a volatile adjustment
Low funding rates mean that short-term market volatility will decrease, and prices may fluctuate within a relatively stable range.
📈 Possible long-term impact: A low leverage environment is often the starting signal for a new round of market trends!
• The past few bull markets have experienced similar situations. After the leveraged funds decreased, the market went through a period of consolidation and then ushered in a new round of outbreak.
• When the funding rate is extremely low, once the market ushers in a new catalyst (such as the Federal Reserve’s interest rate cut, Bitcoin halving, etc.), prices will often see a sharp rise!
So, what is the average investor to do?
4. How to plan? Smart money is already taking action!
✅ 1) Take advantage of the low leverage in the market and deploy spot at low prices
When leveraged funds decrease, market risks are reduced, which is a great opportunity for spot investors. You can take advantage of the adjustment period to gradually deploy BTC, ETH and high-quality altcoins.
✅ 2) Pay attention to new hot spots in the market, especially tokens favored by institutions
At present, market funds are leaning towards institutional adoption, stablecoin ecology, and Meme coins. These tracks may explode first during the low leverage period.
✅ 3) Be alert to sudden market fluctuations and keep enough liquidity
Although the current market leverage is low, if there is a sudden influx of large funds or external positive news (such as a rate cut by the Federal Reserve), the market may rise rapidly. Be prepared to increase your positions at any time.
5. Conclusion: Does low leverage really eliminate risks?
There is never a lack of opportunities in the market, but what is lacking is the eyes to read the signals.
The decline in funding rates does not mean that the bull market has stalled. Instead, it may mean that the market is accumulating energy and waiting for the next big market to break out.
If you rushed in during the high leverage phase in December last year, you might face the risk of a pullback from high levels.
But now, market leverage is being cleansed, risks are being reduced, and new opportunities are emerging!
Here comes the question: Do you think low funding rates are a danger or an opportunity? See you in the comments section! #资金费率
