Crypto Markets Analysis: Bitcoin Funding Rates Shift Into Negative Territory Amid Rising Investor Caution

Bitcoin funding rates shifted into negative territory on Sunday, underlining increased investor caution.

Funding rates represent payments made on exchanges that trade perpetual futures contracts. Because perpetual futures contracts never expire, funding rates ensure the spread between spot bitcoin and bitcoin futures remains in sync.

When a funding rate is positive, long positions pay short positions, reflecting bullish sentiment. The opposite is the case when funding rates are negative, as they are currently.

To be sure, bitcoin’s funding rate is only slightly negative, but its recent trend is more noteworthy than the extent of its drop into the red, indicating a change.

Bitcoin’s term structure remains in contango, a condition when the bitcoin futures price exceeds its spot price. For crypto assets, contango occurs when there is increased buying in futures markets, and is often a bullish signal.

Bearish sentiment in BTC funding rates coupled with bullishness in term structure aligns with the increasingly cautious tenor of crypto markets. Bitcoin’s trading range has also contracted over the most recent four trading days, with an average daily move of 0.67%. Trading activity is declining as well because BTC’s trading volume has fallen below its 20-day moving average for 11 consecutive days.

Recent regulatory concerns are affecting both valuation and activity as investors reassess risk factors that emerged in the prior week.

Those developments include crypto exchange Kraken’s settlement with the Securities and Exchange Commission (SEC) to shutter its staking operations in the U.S. and to pay a $30 million fine. The news roiled markets.

Crypto market observers’ expectation that the SEC will be ramping up investigations into stablecoins and introducing new regulation has introduced risk not previously accounted for, and may continue to affect prices negatively.