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21 January 2020

‘Bitcoin Is Digital Gold’ Narrative Still Unproven, Warns Expert Trader

‘Bitcoin Is Digital Gold’ Narrative Still Unproven, Warns Expert Trader

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This leads intraday traders to search for other tools that provide insight into Bitcoin’s market structure. .

CI:  I would argue that it has more to do with funding rate extremes than anything else.

The funding rate — by itself — is just a mechanism used by the exchange to help their synthetic product (perpetual swaps, in this case) mimic spot price.

If it's negative, then short contract holders pay long contract holders since it means that the previous eight-hour period saw swap contracts trading at a discount to the underlying spot price. .

However, as long as the funding rate is low, there isn't a lot of encouragement to move traders from long to short or short to long.

It's when the funding rate starts increases strongly that the market participants are more likely to move away from the pain of holding their position. ?

But even at that point, it's doing nothing more than keeping the exchange's synthetic product's price comparable to the spot price?

To this end, traders can potentially use the funding rate to understand which way spot price may be heading and then trade spot on other exchanges accordingly.

By doing this, traders can more effectively utilize leverage as they find more prominent bases from which to long or ceilings from which to short

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