Negative Bitcoin funding rates could be bullish: analyst

The market crash on August 5 reversed Bitcoin’s funding rate for margin positions, potentially paving the way for a fourth quarter of bullish activity.

Pseudonymous CryptoQuant analyst ShayanBTC said Bitcoin’s (BTC) early August decline could benefit the digital asset before the end of the year. The drop to $49,000 caused a massive deleveraging wave, offloading nearly $1 billion worth of BTC long positions. The drop also wiped out over $1.2 billion worth of crypto margin positions and sent funding rates into the negative.

As a result, short-term sellers dominated leveraged positions. According to CryptoQuant researcher, investors can view this development as a net positive, as it “suggests that future markets are no longer overheated.”

BTC funding rates | Source: CryptoQuant

“Smart Money” remained bullish on the markets as Bitcoin whales increased their holdings by more than 404,000 tokens in the past 30 days after a brief surge to $70,000 and a dip below $50,000 last month. The accumulation frenzy coincided with several liquidation events, including Germany’s $3 billion liquidation and a payout of over $6 billion to Mt. Gox creditors, CryptoQuant data showed.

Investors adding BTC to their coffers usually indicates bullish sentiment for the largest cryptocurrency and points to strong market sentiment embraced by long-term investors, especially at a time when funding rates are falling, creating more room for upward momentum.

Bitcoin could fall lower before rallying

As whales buy more BTC, Bitfinex analysts predicted on Aug. 5 that the token could retest support near $48,900 before rallying back toward new all-time highs.

The claim aligns with historical data that shows Bitcoin generally struggles in August and September. Gains in July were erased by macro-driven market fears, but the fourth quarter could bring relief for BTC.

Before global markets pulled back, investors and markets were expecting Federal Reserve rate cuts in September. A moderate outcome at next month’s Federal Open Market Committee meeting could inject much-needed liquidity into the crypto market and boost prices.