After remaining below $80,000 for several weeks, Bitcoin finally broke above the psychological level on Monday, May 4. The bullish momentum in the leading cryptocurrency increased significantly, taking its price to $82,000 over the past week.
While the price of Bitcoin has slowed down over the past few days, most indicators point to the market leader being in bullish territory, at least in the short term. For example, a specific on-chain metric shows that the price of BTC is on the verge of another uptrend.
Is a short squeeze imminent for BTC?
In a recent QuickTake post on the CryptoQuant platform, market analyst CryptoOnChain discussed An important event in the Bitcoin derivatives market. Fresh on-chain data shows that BTC funding rates on Binance have fallen to -0.002, a new multi-year low.
The relevant indicator here is the 50-day simple moving average of Bitcoin’s funding rates on Binance, the world’s largest cryptocurrency exchange by trading volume. As highlighted by CryptoOnChain, this metric, which measures the periodic fees exchanged between traders in the cryptocurrency’s derivatives market, has fallen to its most negative level since the post-Covid crash in April 2020.
Typically, negative funding rates mean that short traders (investors with sell positions) are paying fees to long traders (investors with buy positions) as they bet against the price of the cryptocurrency (Bitcoin in this case). “Prolonged negative funding rates of this magnitude indicate bearish sentiment and complete dominance of aggressive short-selling,” CryptoOnChain said in its QuickTake post.
Source: CryptoQuant
Additionally, CryptoOnChain notes that history provides some context for why current funding rates could be good for Bitcoin’s price. The analyst explained that when the derivatives market was “tilted toward shorts” in the past, BTC experienced a “short squeeze,” which provided rocket fuel for further gains.
For context, a short squeeze is a phenomenon in which an asset’s price experiences a rapid surge, forcing short traders to buy to cover their losses from the initial surge and subsequently triggering a self-reinforcing wave of buying pressure. CryptoOnChain notes that these latest on-chain dynamics strongly suggest that the $80,000 area could be the beginning of the next uptrend.
Bitcoin price at a glance
At the time of writing, the price of BTC is around $80,132, with no significant changes in the last 24 hours. The leading cryptocurrency is up more than 2% over the past seven days, according to CoinGecko data.
The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView
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