Avocado_onchain2025-02-07

Monitoring Binance Funding Rates: Will Bitcoin Rebound After Extreme Fear?

A few days ago, a large-scale liquidation of long positions took place, and investor sentiment has yet to recover. After Bitcoin hit a new all-time high, funding rates continued to decline, serving as an early warning signal for the mass liquidations. Historically, in bull markets, Bitcoin has tended to rebound after funding rates turned negative due to large-scale liquidations. Looking at the average funding rate across all futures exchanges, we see that while Bitcoin experienced a short-term bounce after hitting negative funding rates, it eventually underwent further price corrections.(Chart 1) However, when focusing solely on Binance where the platform dominates global trading volume with a high proportion of retail investors negative funding rates have been less frequent compared to other exchanges. Interestingly, when Binance did record negative funding rates, Bitcoin셲 price has historically seen significant upward movements. This suggests that extreme fear among investors often leads to an overly pessimistic market outlook, while Bitcoin tends to move in the opposite direction of the majority sentiment.(Chart 2) Historically, Bitcoin has surged when most market participants abandoned the market in extreme fear. Given this pattern, we will closely monitor whether further declines push Binance funding rate into negative territory, potentially signaling a strong rebound.