Crypto Funding Rates Plunged To 2022 Lows Amid Liquidations

Funding rates across cryptocurrency derivatives markets fell to their lowest levels since the depths of the 2022 bear market, with short sellers on the rise over the weekend.

There was a significant decline in financing rates I mentioned By onchain analytics provider Glassnode on Sunday.

“This represents one of the most severe leverage resets in the history of cryptocurrencies,” the analysts noted, noting that it was a clear sign of “how aggressively speculative excess has been flushed out of the system.”

Funding rates are periodic payments between traders in the most popular cryptocurrency derivatives — perpetual futures. They are designed to keep the perpetual contract price tied to the spot price.

When funding rates are very low or negative, there are more short positions than long positions, which is often a signal that derivatives speculators expect prices to fall, so people are willing to pay to hold short positions.

Too many short trades can lead to higher prices

However, very low funding rates, such as the current situation, can actually be bullish because the market may be oversold with too many short trades creating the potential for a “short squeeze” if prices start to rise.

Financing rates fell to their lowest levels in 2022. Source: Vitreous node

Cryptocurrency markets are already recovering

This appears to be the current situation, as CoinGlass’ buy/sell ratio has turned to the upside. About 54% of sentiment is bullish or very bullish, while 16% remains neutral and 29% remains bearish.

Queenglass too Reports Long accounts currently make up 60%, with 40% still short.

However, funding rates remain slightly negative at the moment across Bitcoin (BTC) and Ethereum (ETH) perpetual swaps, According to To Queenglass.

Related to: ETH, BNB and DOGE lead as crypto market cap rebounds to $4 trillion

Spot markets have recovered strongly, with Bitcoin rising more than 5% since falling below $110,000 on Sunday, while Ethereum has recovered 12% since falling below $3,800.

The largest liquidation in the history of cryptocurrencies

The largest leveraged influx in cryptocurrency history, in what some are calling “Crypto Black Friday,” saw the total market capitalization of nearly $1 trillion drop by 25% in a matter of hours. According to To TradingView.

Whales resorted to short positions in anticipation of a decline when US President Donald Trump announced his latest round of tariffs on China on Friday. When the series came, 1.6 million traders with leveraged long positions were liquidated.

The trading volume was so strong that it triggered Bitcoin’s first-ever $20,000 red candle, a $380 billion drop in its market value, “before a V-shaped bottom as short positions closed.” I mentioned Al Qubaisi’s message on Sunday.

She added that this was not only the largest liquidation ever, but was nine times the previous record. Leverage flows are common in markets and help reset them after excessive speculative build-up in cryptocurrency derivatives.