Short liquidations contradict negative funding rates in perpetual futures
The post Short liquidations contradict negative funding rates in perpetual futures appeared on BitcoinEthereumNews.com.
The open interest-weighted funding rate for Bitcoin perpetual futures turned negative in the past 24 hours. A negative funding rate usually signals bearish sentiment in the futures market, but the majority of liquidations seen in the past day were shorts, which typically follow a price increase. This apparent contradiction starts making sense when looking at how the market behaved in the past week. The funding rate in perpetual futures contracts ensures that the contract price aligns with the spot price by facilitating periodic payments between long and short position holders. A negative funding rate, as observed on March 25 and March 26, means shorts are paying longs, suggesting that the contract price is below the spot price — a hallmark of bearish sentiment where traders anticipate a price decline. On March 25, the funding rate dropped to -0.040%, and it remained at this level throughout March 26, according to data from CoinGlass. Graph showing the open interest-weighted funding rate for Bitcoin perpetual futures from March 21 to March 26, 2025 (Source: CoinGlass) However, liquidation data tells a different story. Over a one-hour period, short liquidations totaled $14.19 million compared to just $671,540 for longs, and over four hours, shorts saw $23.50 million in liquidations against $2.28 million for longs. Short liquidations occur when the price rises, forcing short traders to buy back contracts at higher prices to cover their positions, often amplifying the upward movement. How can a negative funding rate, indicative of bearish sentiment, align with predominantly short liquidations, which suggest a price rally? To answer this, we turn to Bitcoin’s spot price in the past week. On March 20, Bitcoin closed at $84,175.02. The price dipped slightly to $84,053.96 on March 21 and further to $83,843.18 on March 22, but it began a steady climb thereafter, reaching $86,142.15…
Filed under: News - @ March 27, 2025 2:21 am