One year of funding rates at or below neutral
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07 Dec 2022
Trading activity in perps reaches multi-year lows
Activity in bitcoin derivatives has come to a standstill alongside the rest of the market. Open interest has stabilized materially, and we note a sharp decline in trading volumes
Activity in bitcoin derivatives has come to a standstill alongside the rest of the market. Open interest has stabilized materially, and we note a sharp decline in trading volumes. The current aggregated 7-day average trading volume in perps sits at $14bn and reached multi-year lows of $12.7bn on November 30.Perpetual swaps are the most frequently traded BTC instrument. Perps have tended to see volumes stabilizing in the $20-$30bn range in previous low volatility environments after dramatic selling pressure. The current decrease in perp activity suggests that market participants have exited the market in the last month and that we might experience slower days ahead.
The falling trading volumes in perps may also be caused by declining trust in centralized offshore exchanges following the fall of FTX. This also aligns with exchange balances declining from 2.5m BTC to 2.3m BTC in the last 30 days. A decline of 7.93% in the last 30 days, the largest relative decline in BTC exchange balances since January 2015. Source: Binance, Tradingview (Coinbase)
Funding rates have now been neutral to below neutral for an entire year. The previous record-long duration of funding rates at or below neutral levels lasted for 2.5 months, so this is clearly unchartered territory for BTC perps. Nevertheless, as we have illustrated previously, the funding rate regime has still benefitted the short side since the peak of the bull market, unlike what we saw on BitMEX in 2018.
While the observation of the prolonged state of this bearish funding rate regime presents limited actionable insights, it is telling of the longevity of the negative sentiment in the market. Despite the funding rate regime of the last year, shorts have yielded a cumulative funding rate of 4.5% since December 4, 2021, due to funding rates tending to stabilize near neutral territory as sell-offs quiet down.