Bitcoin Price Is Showing All 3 Crucial Signs of a Classic Bull Trap

The Bitcoin price increased by more than 10% in a 24-hour span, rising from $7,020 to $7,770 on both spot and futures exchanges. But, BTC is showing all three signs that the upsurge was a bull trap.

Negative futures funding rate before the rally, altcoins failing to front-run Bitcoin, and the BTC price running into a multi-year resistance level all point toward the recent price spike being a fakeout.

Futures funding rate was negative before Bitcoin rally

On Binance Futures, the funding rate of Bitcoin dropped to as low as -0.03% prior to the abrupt increase in price.

Bitcoin funding rate chart across all futures exchanges. Source: Skew

Futures exchanges like BitMEX and Binance Futures use a system called funding to provide balance in the market for both long and short contract holders. If there are more short contracts in the market, then the funding rate turns negative and traders shorting BTC have to compensate long contract holders with a portion of their positions.

As an example, if a trader places a $50,000 short on Bitcoin and the funding rate is -0.03%, then the trader has to pay $15 every eight hours, so $45 in total per day to long contract holders.

When the Bitcoin price started to increase and the funding rate remained negative on April 23, it created an unfavorable environment for sellers, as they were paying a part of their positions while the value of their trades was swiftly declining.

That forced short holders to close or adjust their positions, adding to the already rising buying demand in a short period of time. It ultimately converted into a short squeeze, liquidating $79 million worth of shorts on BitMEX alone.

A short squeeze was expected due to the negative funding rate, but the momentum of the rally dwindled quickly, raising skepticism towards the strength of the upside move.

Altcoins are not rallying in tandem

Typically, in an extended and sustainable Bitcoin rally, major alternative cryptocurrencies in the likes of Ether (ETH) and XRP tend to rise…

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