Bitcoin futures funding rate hits multi-month high, signaling bullish sentiment

The bitcoin open interest (OI) weighted perpetual futures funding rate has reached a multi-month high, signaling potential bullish sentiment in the short to medium term, according to an analyst.

The current OI-weighted funding rate sits at 0.012%, a level not seen since July 27, when bitcoin briefly surged to $68,000. However, the largest digital asset by market capitalization subsequently saw a major 22% price correction at the beginning of August after the highly leveraged market was flushed out.

YouHodler Chief of Markets Ruslan Lienkha explained that while a positive funding rate generally indicates bullish market conditions, it should be interpreted cautiously.

“A local peak in the positive funding rate may signal a bullish trend in the short to medium term, but it should not be relied upon for long-term predictions due to the volatile nature of the crypto market,” Lienkha told The Block.

According to Lienkha, funding rates in traditional markets like commodities often reflect long-term trends due to their link to the real economy, which moves at a slower pace. However, the YouHodler analyst pointed out that the crypto market behaves differently.

"Crypto lacks a direct connection to actual economic processes, allowing market sentiment to shift much faster," he said. As a result, funding rates in crypto markets are more prone to fluctuation, making them a less reliable long-term indicator compared to other asset classes, he added.

The bitcoin futures funding rate has reached a multi-month high, indicating short-to-medium-term bullish sentiment, an analyst said. Image: Coinglass

Rising funding rates amid increased liquidations

The rise in the funding rate comes amid heightened market volatility, leading to significant liquidations. Over the past 24 hours, more than $93 million worth of bitcoin positions were liquidated, with $83 million of those being short positions, according to Coinglass data . This indicates a surge in bullish bets, as traders with short positions were forced to liquidate positions amid bitcoin’s price recovery.

The broader cryptocurrency market saw over $240 million in liquidations in the same period, with ether, the second-largest cryptocurrency, accounting for $50 million in liquidations, with $43 million in short positions.

After a period of consolidation over the weekend, bitcoin has broken above the $65,000 mark, rising 6% in the past few hours and surpassing its 200-day moving average. According to Bitget Chief Analyst Ryan Lee, traders are closely watching this breakout, particularly after several failed attempts recently to breach this key level. The focus now shifts to whether bitcoin can sustain this upward momentum or face another pullback.

Lee expanded on factors encouraging the optimism surrounding bitcoin’s recent price action. "Bitcoin BTC +4.86% ’s breakout above $65,000 is significant, especially given recent coin accumulation and renewed optimism around the U.S. presidential election," he told The Block. 

Bitcoin is attempting to make a sustained break above its 200-day-moving-average. Image: TradingView

Positive inflation data boosts market sentiment

The rally in cryptocurrency markets also coincides with positive inflation data from the U.S. Producer Price Index (PPI). On Friday, the PPI came in at 0% — lower than the positive 0.1% forecast — indicating easing inflationary pressures. Core CPI , which excludes volatile items like food and energy, also undershot expectations, coming in at 0.1% versus an expected 0.2%. The year-over-year PPI rate stood at 1.8%, bolstering investor sentiment in riskier assets like cryptocurrencies.

Lee noted that positive inflation data could serve as a catalyst for further upward momentum for bitcoin .

"The PPI report tempered concerns over inflation, which had been heightened by the previous CPI release. This has helped support bitcoin’s current rally and could pave the way for a year-end surge,” said Lee.

Looking ahead, Lee expects bitcoin to trade between $50,000 and $80,000 by year-end, with the possibility of wider fluctuations in the first quarter of 2025.

"If key economic indicators remain favorable and bitcoin breaks past its current resistance levels, we could see further upward acceleration, especially as various market catalysts come into play," he said.