Analyze the changing rules of contract funding rates and guide future trading

Original - Odaily

Author - Nan Zhi

Since the short-term correction after the adoption of the Bitcoin Spot ETF, BTC has led the crypto market to start a one-way upward trend. As the upward trend accelerates, the market enters an extremely frenetic stage,The contract rates of various currencies are high, with most reaching 0.2% ~ 0.3%. The average rate of Bitcoin in March was as high as 0.055%, refer to the bull market in 2021 that has entered a high range. At 23:00 yesterday, BTC broke through 69,000 USDT in the short term, reaching a maximum of 69,080 USDT, surpassing the previous high of 69,040.1 USDT set in November 2021. OKX market data shows that BTC only broke through the previous high for less than 1 minute, and fell to 59,000 USDT after 3:55 am.

After the flash crash,Most of the leverage has been cleared, and rates have begun to return to relative rationality., Binance’s current BTC fee rate is 0.04%, which is about 0.05% lower than the highest 0.09% before the flash crash. Currently, there are only three currencies with fee rates higher than 0.1%.

After the leverage is cleared, can it continue to rise with ease? Or maintain the inertia callback? Odaily will analyze the relationship between the rate drop and the market outlook based on the rate data of the bull market in 2021 and the trends of BTC, ETH, and SOL.

Rates and Price Trends

In order to maintain the display effect, 2021 is divided into two market periods, January to May and August to December. The trend chart is as follows. The rules that can be intuitively obtained from the figure are as follows:

• The rates are generally consistent with the price trend. If the general direction increases, the rates will rise;

• Rates hit the top before price and fell with the flash crash;

• But falling prices are not a sufficient condition for falling rates;

Is the fall in interest rates and the completion of leverage clearing a sufficient condition for continued growth in the context of a bull market? Odaily is analyzed through data backtesting in the next section.

Is a fall in rates a sufficient condition for an increase?

Rate range: Due to the different heights of the highest fees for each token, the fee drop range for BTC is set between 0.02% ~ 0.07%, and for ETH and SOL, it is set between 0.02% ~ 0.1%

time interval: The rate is charged every eight hours in 2021. The daily rate is averaged three times. The difference is today’s average minus yesterday’s average.

price source: Prices are taken from historical data provided by CoinGecko

rising standard: Consider two dimensions: Whether the rate will rise the next day after a sharp drop? and whether the lowest price within three days after the rate drop is also the lowest price within seven days (that is, will it continue to fall within seven days) .

Based on the above parameters and statistical methods, the data is shown in the table below, from which we can get:

• There is a positive correlation between the bottoming of prices and the bottoming of rates. The more rates fall, the higher the probability of recovery;

• When the magnitude of the decline is not high (approximately in the range of 0.02% -0.03%), it can be considered to have nothing to do with the subsequent market trend, and the probability of an increase or decrease is 50-50;

• The correlation coefficients between different currencies are quite different. BTC and SOL need to fall significantly to serve as the basis for an increase. ETH rates tend to rise after falling, but have little relationship with the decline.

  

in conclusion

The drop in rates can be used as a reference for the market outlook to a certain extent, but the drop in rates this time is not deep and has a small impact and is not suitable for reference. However, under the background of a bull market, high leverage and high interest rates often occur, followed by flash crashes, which may serve as a reference for the future.