Bitcoin (BTC) saw a drop of about 7% on Monday morning (11th), falling to a price of $40,500 at one point, with a trading price of around $41,900 at press time. Data shows that this sharp decline is a cooling-off of the overheated cryptocurrency perpetual futures market.
According to data from Velo Data, the funding rates of Bitcoin, Ethereum (ETH), and other major cryptocurrencies continued to touch levels of 0.15% in the latter half of last week, indicating an overheated leverage market. With the drop in market prices during the early Asian session today, this situation has returned to normal, with the funding rates of most currencies staying below the healthy level of 0.1%. High funding rates (typically above 0.1%) are seen as a sign of excessive bullish leverage or too many long positions.
This is a sign that traders with excessive leverage are being squeezed out of the market. When momentum stalls, funding rates or costs associated with leverage become a burden, forcing overleveraged traders to exit and causing minor bullish/bearish fluctuations.
The decrease in the total nominal open interest (OI) of the entire market also confirms this. Tokens such as XLM, UNI, LINK, and XMR saw a double-digit decline in open interest contracts in the past 24 hours. Bitcoin and Ethereum’s open interest contracts decreased by 1.3% and 6.7% respectively.
However, market sentiment does not seem to have turned bearish due to the significant drop. Blockchain analytics company Santiment pointed out that after the market pullback, there is a high level of interest in bottom fishing on social media, “which usually indicates some excessive eagerness and FOMO at these low price levels.”
Source:
Santiment
Data Source: Velo Data