Bitcoin (BTC) The overnight pullback from fresh record highs has removed excess leverage from the market, with funds rates normalizing in the crypto perpetual futures market.
The leading cryptocurrency by market value fell 10% to $59,700 after hitting a new lifetime high above $69,000. The amendment led to the forced closure of $1 billion worth of leveraged perpetual futures bets on digital asset markets.
The CoinDesk 20 Index (CD20), a broad market gauge, rose to $2,627 on Tuesday, then retreated to $2,496.
Since then, the cost of holding leveraged bets on annualized fund rates or perpetual futures tied to the top 25 cryptocurrencies has reset to less than 20%, a significant drop from the triple-digit figures seen a few days ago.
In other words, an overheated perpetual futures market has cooled, opening the door to a much longer record. Fund rates surged over 100% earlier this week as Bitcoin's strong bullish momentum saw investors jump in with both feet and use leveraged products to maximize profits.
Exchanges use a financial ratio mechanism to align fixed prices with spot prices. A positive funding ratio indicates that perpetuals are trading at a premium to the spot price, indicating increased demand for bullish bets. Therefore, the high funding rate seen earlier this week is said to reflect the overconfidence often seen at midterm market peaks.
Velo Data's chart shows that funding ratios for the top 25 cryptocurrencies have ranged from mildly positive to 150% or more over the past week.
The latest reading for most currencies is less than 20%.
According to John Glover, Ledn's Chief Investment Officer, the market may continue to decline in the coming weeks, pushing the price of Bitcoin to $40,000.
“The euphoria surrounding the recent rally in BTC prices is very reminiscent of the last time we traded at $65k. While many have pointed out that the sell-off after November 2021 (and after April 2021) was caused by bad players in the market, I would argue that it may have been accelerated by bad players. , to $100,000 “The sell-off is because people are overextended with unrealistic expectations of a linear valuation,” Glover said in an email.
“I believe we're back in the same situation and we'll see a correction back into the mid-to-low $40,000s in the coming weeks. Things are always bullish at the extremes,” Glover added.
