Why a High Funding Rate Over the Long Term Might Be Bad

Picture this: you’re on a thrilling rollercoaster.

Fun at first, but too long, and it’s draining.

That’s how high funding rates work in crypto.

What’s a Funding Rate?

In perpetual futures, funding rates are fees between long and short traders to keep futures prices in line with the spot market.

Bullish markets mean longs pay shorts; bearish markets mean the reverse.

It’s a balancing act.

Why High Rates Are a Problem

A high funding rate means too many traders are bullish, driving up costs for longs.

If this continues for too long, longs bleed money just to keep positions open.

Worse, it signals an overcrowded trade.

Markets hate when everyone’s on the same side—they often flip unexpectedly.

Real-Life Examples

Think Bitcoin in early 2021: high funding rates reflected euphoric long positions.

Then came the May crash—liquidations piled up as the market reversed.

Or Terra’s meltdown in 2022, where high rates warned of overleveraged traders.

The Lesson

High funding rates can hint at strong trends but also signal danger.

Smart traders use them as warning signs, not green lights.

When rates stay high for too long, it might be time to reconsider your position—or go against the herd.

Crypto moves fast.

Don’t let high funding rates leave your wallet empty.

Stay sharp, stay safe.