Is There A Correlation Between BTC Price And Binance Funding Rates?

The price of Bitcoin (BTC) has made quite the recovery in the past few weeks, raising questions about the sustainability of this fresh bullish momentum. It remains to be seen whether the flagship cryptocurrency is setting a bull’s trap, or it is making a legitimate claim for a new all-time-high price. However, the latest on-chain data suggests that the Bitcoin price might be at the beginning of a strong upward trend.

Is There A Correlation Between BTC Price And Binance Funding Rates?

In a Quicktake post on the CryptoQuant platform, on-chain analyst Burak Kesmeci examined how funding rates on Binance can be used to analyze Bitcoin’s price trajectory in the short term. For context, the “funding rate” metric measures the periodic fee exchanged between traders in the derivatives (perpetual futures) market.

A positive funding rate indicates that the long traders (investors with buy positions) are paying a fee to short traders (investors with sell positions). This trend of the periodic fee signals the prevalence of a bullish sentiment in the crypto market.

On the other hand, a low funding rate metric implies that investors with short positions are paying long traders in the derivatives market. This direction of funding rate suggests that the market is being dominated by the short sellers.

According to Kesmeci, an in-depth evaluation of Binance’s Bitcoin funding rates over the past 30 days shows a clear correlation with the short-term price movement. When funding rates turned positive, the price of BTC typically experienced notable increases in the short term.

The on-chain analyst highlighted two scenarios in the past month where the price of BTC displayed a strong correlation with the funding rates. Firstly, the Bitcoin funding rates on Binance entered positive territory and reached strong levels (0.0030 and above) between April 10 and April 22, with price simultaneously rising from $79,000 to $93,000.

In the second period — between May 6 and May 10, the funding rates once again entered into positive territory, with the Bitcoin price jumping from $95,000 to $103,000 during this time. According to Kesmeci, the funding rates on Binance — the world’s largest exchange by trading volume — remain pivotal to the BTC price trajectory.

Kesmeci concluded that the rise in the spot market, reinforced by positive funding rates in the futures market, suggests a strong short-term upward trend for the Bitcoin price. With further bullish momentum, it would only be a matter of time before the premier cryptocurrency reclaims its current all-time-high price and perhaps forge a new one.

Bitcoin Price At A Glance

As of this writing, the price of BTC stands at around $103,605, reflecting a 0.5% jump in the past 24 hours.