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29 September 2020

Futures traders are short Bitcoin — 3 reasons it won't stop the rally

Futures traders are short Bitcoin — 3 reasons it won't stop the rally


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Futures traders are short Bitcoin — 3 reasons it won't stop the rally.

The three factors are low funding rates, the likelihood of a short squeeze, and the implications of defending the $10,000 support level.

The Bitcoin futures market implements a mechanism called “funding.” In a nutshell, funding incentivizes traders longing BTC or betting on it to increase in price if the market is majority short, and vice versa.

As such, when most of the market is actively shorting Bitcoin, then short contract holders have to compensate long holders.

If BTC doesn’t drop but funding rates remain low, short contract holders don’t have an incentive to hold onto shorts.

The upsurge indicates that a minor short squeeze is currently occurring, neutralizing the futures market.

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