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The practice of buying bitcoin (BTC) as collateral to sell at a higher price in the future could come to an end as the price of crypto falls, marking a shift in investor sentiment from bullish. on the decline.
Futures traders have started pricing bitcoin contracts that expire in three months at almost the same price as the current spot price, Norwegian cryptocurrency analysis firm Arcane Research wrote in a report on Tuesday.
The decline in the term premium indicates uncertainty about the future direction of bitcoin after a correction of 35% in May and another drop of 12% already this month.
“This indicates more bearish sentiment among futures traders,” according to Arcane.
A shift in sentiment is especially significant in crypto futures markets, which tend to be driven by behavioral dynamics, according to Max Boonen, director and founder of B2C2, a London-based cryptocurrency market maker.
This is unlike conventional markets such as [foreign exchange], where spot and futures prices are closely linked by levels determined by central banks, Boonen wrote in an email to CoinDesk.
Bitcoin porting is taking place
Many investors have been playing cash and carry, i.e. shorting futures and long positions to profit from a base tightening, David Grider told CoinDesk in an email, strategist at FundStrat.
Arbitrage trading has become less attractive as the bitcoin futures curve has flattened in recent months.
Contango, a term used to describe bullish arbitrage, occurs when the futures price of bitcoin is higher than the spot price. Since April, the bitcoin contango has narrowed as bullish sentiment fades.
The chart shows BTC futures on a three-month basis across exchanges, which is the relative difference between the price of the futures contract and the spot rate over an annual period.
Source: Arcane Research
The month-long bitcoin futures contract has already been offset, meaning the futures price is lower than the spot price. This is another bearish signal.
Bitcoin funding rate turns negative
Arcane Research has also pointed to the negative funding rate on perpetual bitcoin swaps as a sign that short traders are in control.
Perpetual swaps are a type of derivative in cryptocurrency markets used to bet on future prices, similar to futures in traditional commodity markets. A negative funding rate means traders who bet on further price declines pay traders who are long or positioned bullish for leverage.
The chart shows the bitcoin funding rate, which turned negative, indicating that shorts are paying longs to establish positions.
Source: Arcane Research
Long story short: The bulls got scared and the diamond hands turned out to be made of coal, wrote Nathan Cox, chief investment officer at Two Prime, a digital asset investment manager, in an email to CoinDesk.
However, a negative finance rate can be a negative signal.
We are more likely to see shorts sellouts, which can result in a so-called short squeeze and push [the] even higher price, Arcane Research wrote.
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