For the first time since March 2023, annual funding rates for perpetual Bitcoin futures contracts reached 100%, creating favorable conditions for cryptocurrency hedge funds to arbitrage, Coindesk writes.
The Bitcoin (BTC) rate increased by more than 10% from February 26 to February 27 and exceeded $57 thousand on the Binance exchange paired with the USDT stablecoin. The historical maximum price of Bitcoin was recorded on November 10, 2021 at $68.7 thousand. The last time the first cryptocurrency traded above $57 thousand was then, in November 2021, after reaching its peak.
According to the analytical platform CoinGlass, the funding rate for perpetual futures for Bitcoin on the Binance crypto exchange exceeded 100% for the first time in a year. On the Bybit and Deribit exchanges, funding rates rose to 95 and 56%, respectively. At the time of publication - February 27, 14:51 Moscow time - financing rates have decreased to an average of 45%.
The funding rate, or funding rate, is a periodic payment to traders who have open positions in the perpetual futures market. Funding is calculated several times a day and allows you to prevent a strong deviation in the rate of a derivative contract from the price of the underlying asset.
The funding system on exchanges automatically debits funds from some traders and credits them to others.
If the price of a perpetual futures contract is higher than the price of the underlying asset, then the funding is positive. In this case, the funding rate is charged to traders who are long and credited to traders who are short. If the price of a perpetual futures contract is below the price of the underlying asset, then funding is negative and the funding rate is charged to short traders and credited to long traders.
Exchanges periodically charge traders fees to maintain a balance between futures prices and Bitcoin spot prices. Typically, funding is calculated every few hours. For example, on the Binance exchange, the funding rate is determined every eight hours.
A positive funding rate means that the futures price is above the spot price of the asset and requires long position holders (buyers) to pay a commission to short position holders (sellers).
The increase in funding rates is due to the fact that traders are betting on increases in anticipation of a further influx of funds into exchange-traded funds for Bitcoin, says 10X Research analyst Markus Thielen, who previously predicted a rise in Bitcoin to $70 thousand.
“Funding rates in the futures market are rising sharply along with open interest reaching $14.4 billion,” said Markus Thielen. “Traders are becoming increasingly confident that the halving and inflows into ETFs will drive further gains.”
Thielen also added that rising funding rates create an opportunity for arbitrage by profiting from differences in the price of the same asset in the spot and futures markets. A high funding rate means that futures trade at a significant premium to the spot price. Thus, an arbitrageur can sell perpetual futures and buy cryptocurrency on the spot market, receiving a premium while avoiding the risks associated with price volatility.
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