Bitcoin (BTC) is breaking out again, which has become almost normal in the last few days. The euphoria is back the sky is the limit one seems to think. However, Dutch analyst Michaël van de Poppe issues an important warning in a post on X.
Bitcoin funding rates are rising – time to take profits?
In the mail writes van de Poppe: “Bitcoin tops $58,000 as funding rates go through the roof.” He calls the new upward move “insanely strong,” but that these are “certainly areas to take profits.”
Financing installments are regular payments exchanged between buyers (long positions) and sellers (short positions). Without going into too much detail, here’s what it comes down to.
When the funding rate is positive, traders with a long position pay traders with a short position and vice versa when the rate is negative.
Since the price has now risen significantly, the funding rate is also increasing. More and more traders are opening long positions because they expect the price to rise even further. The general euphoria in the crypto market is contributing to the rising prices.
The danger for Bitcoin is increasing
According to analyst Twisting in the Wind, there are a number of risks associated with rising financing rates. So there is a chance long press follows. This means that long traders are getting liquidated because the price is falling instead of rising.
The more long positions are open, the more intense such a squeeze can be. In other words, a drop in the price of Bitcoin can trigger a chain reaction.
Such a scenario occurred in May 2021. Even then, financing rates rose sharply and a significant correction followed.
Experienced traders will therefore now pay particular attention to a possible trend reversal. Due to the increasing funding rate, a correction could be very serious.