Bitcoin’s (BTC) recent rejection at $12,400 triggered $234 million in futures contract liquidations across derivatives exchanges. Despite a 30% rally in the past 30 days, maintaining the $11,700 level as support is undecided.
Bitcoin hasn’t seen a lower low ever since the mid-March 50% shakedown, which caused the price to test the sub-$4,000 level.
Bitcoin USD 4-hour chart. Source: TradingView
Surely there have been ups and downs over the past three weeks, although a clear uptrend has been present. Traders’ sentiment certainly wasn’t positive on August 2 after a $1,400 crash that liquidated $1 billion in futures contracts.
It’s natural for the human mind to give more relevance to recent events, especially when presenting a negative outcome.
Traders using leverage will undoubtedly have a more agonizing experience when facing such large unexpected red candles during more extended timeframe uptrends.
Measuring leverage by funding rate
Excessive leverage from buyers will be reflected in the funding rate. This is because perpetual futures contracts, also known as inverse swaps, have an embedded fee for margin usage.
Funding rates are usually changed every 8 hours and they ensure that there is no exchange risk overexposure imbalances.
If buyers are using more leverage than sellers, the funding rate will be positive and buyers will pay. The opposite occurs when future contracts sellers are the ones demanding more margin.
Bitcoin perpetual swaps 8-hour funding rate. Source: Skew
After a brief positive spike on August 10, the funding rate was relatively calm during the next seven days. This trend changed earlier this week as the indicator reached 0.10%, equivalent to 2% per week.
This doesn’t necessarily translate to bullish investors, but it does signal that buyers are the ones using more leverage.
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