Bitcoin fell below $60,000 during mid-European hours, before press time, extending early weakness. Analysts said a pullback was expected and has normalized the elevated funding rates or costs associated with holding long positions in the perpetual futures market.
The cryptocurrency printed lows under $59,000, bringing the 50-day moving average (MA) into play for the first time since Oct. 1.
The sell-off began in Asia following the Twitter CFO’s comments that buying crypto “wouldn’t make sense” for the company. There was continued strength in the dollar index, seemingly due to forced unwinding of long positions by exchanges.
“We have seen substantial long positions (worth $335 million) on crypto exchanges Binance and FTX,” Laurent Kssis, crypto exchange-traded fund (ETF) expert and director of CEC Capital, a crypto trading advisory firm, said in a Telegram chat.
“It’s a combination of long liquidations and market makers getting rid of their risky (bullish) exposure,” Kssis added. “Leverage and delta hedging becomes more expensive as more orders flood the market.”
The average funding rate across major exchanges hovered around 0.05% last week, having hit a six-month high of 0.0589% earlier this month, according to the data source bybt.
Funding rates are calculated and collected by exchanges every eight hours. Costs associated with leverage typically become a burden when the momentum stalls, forcing traders to liquidate.
Bitcoin’s move to record highs near $69,000 last Wednesday was quickly undone with a pullback to $63,000 on Friday. The cryptocurrency saw a meager bounce over the weekend before turning lower on Monday.
“The market was quite complacent and probably overleveraged, as evidenced from last week’s high funding rates,” Amber Funds said.
With the pullback, the average funding rate has reset to 0.01%.