Investors Tread Cautiously as Bitcoin Price Rally Stalls

While funding rates for crypto derivatives are typically lagging, data suggests last week’s price action could become more commonplace after weeks of uncertainty, analysts say

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Source: Shutterstock / Golden Dayz, modified by Blockworks

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Many crypto participants have returned to a cautious approach following a sharp decline in bitcoin’s price late last week.

The velocity of Friday’s move was “definitely unexpected,” Sam Holman, derivatives analyst at Australian trading firm Zerocap told Blockworks.

The asset fell more than 4.7% on Friday to $22,350, its sharpest single-day decline since Feb. 9. Bitcoin (BTC) last traded at around $22,400, Blockworks data shows. The total market value of all coins has slumped to just above $1 trillion, as most remain correlated to BTC.

“The market seems hesitant here on direction; Implied Volatility has fallen a lot in recent weeks due to the lack of momentum in price,” Holman said. 

CPI data is expected to be released on March 14. Although correlations between crypto and the Nasdaq have decreased in 2023, there is frequently an uptick in volatility for crypto when US equities open on Monday, Holman added.

Southeast Asia-based financial services firm Matrixport said in a recent research note its own cautious approach was based on price action retreating to mid-February lows.

“Industry-wide leverage is being cut as the US dollar access and settlement services are being put on hold for many industry players,” Markus Thielen, Matrixport’s head of research, told Blockworks on Sunday.

Lagging or leading bitcoin price?

Select on-chain metrics now also highlight continual pain points for long-term holders seeking to take advantage of this year’s relief rally.

The funding rate for bitcoin perpetual swaps — derivatives similar to futures contracts without an expiration date — has dipped negative for the first time since Feb. 13, CryptoQuant data shows.

A negative funding rate can indicate that market sentiment is bearish and traders are willing to pay a premium to hold short positions to profit from the downward price movement.

Funding rates are more of an indicator of positioning, Dmitry Lapidus partner on the venture unit from crypto-native investment fund Dragonfly told Blockworks.

“If everything is negative that means most of the market is likely short already,” he said, meaning it can also be a counter-trend signal when the market is setting up for a reversal.

It comes as netflow across all exchanges and stablecoins spiked to its highest point this year on Friday, hinting at increasing selling pressure over the short-term.

Netflow measures the difference between coins flowing into and out of a given exchange, which can be measured as Inflow – Outflow, according to CryptoQuant.

A high value indicates increasing selling pressure across spot markets, while a spike in the value across derivatives exchanges points to increased volatility.

The data follows stablecoin issuer Tether’s announcement on Friday that it would work with crypto exchange Binance to transfer Tether’s supply from the Tron blockchain to the Ethereum.

The transfer involved converting 1.6 billion Tether tokens (USDT) from Tron’s native token standard to the Ethereum ERC20 token standard. 

While a reason for the chain swap was not given, it could be related to factors such as network congestion, transaction fees or market demand.

Both on-chain metrics can depict specific behavior, but they often don’t paint a clear enough picture, Holman said.

“Funding rates are a lagging indicator to price and rarely leads,” he said. “Depending on the funding rate calculations at each of the venues, these rates can vary quite a lot,” he said.

They’re also heavily dependent on the flows specific to that exchange, he said.


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