Glassnode Reports Bitcoin Perpetual Funding Rate Turns Negative, Signaling Possible Local Bottom
Bitcoin’s (BTC) perpetual funding rate briefly turned negative for the first time in 2025, according to Glassnode data, marking a significant event for traders watching market sentiment. BTC has remained locked in a range between $90,000 and $100,000 since Nov. 18, oscillating as investor sentiment shifts with price movements.
As Bitcoin nears $100,000, optimism generally drives a bullish outlook, with traders pushing for further gains. Conversely, dips toward $90,000, such as Thursday’s decline, often incite bearish sentiment. This dynamic highlights Bitcoin’s tendency to gravitate toward “maximum pain” zones, prolonging periods of consolidation within these boundaries.
The Role of Derivatives in Bitcoin’s Volatility
Bitcoin derivatives, including futures and options, represent only a small fraction of the cryptocurrency’s overall market capitalization but exert a growing influence on price movements. One key metric for traders is the futures perpetual funding rate, which reflects the cost of maintaining open positions in perpetual futures contracts.
When the funding rate is positive, long positions periodically pay shorts, signaling bullish sentiment. Conversely, a negative funding rate indicates shorts paying longs, typically occurring in bearish conditions.
Funding Rates and Market Behavior
Historically, Bitcoin’s funding rate tends to remain positive during bull markets, as optimism and buying pressure dominate. However, when the market overheats, corrections can trigger cascading liquidations. Conversely, in bear markets, negative funding rates often emerge as price floors develop, forcing shorts to cover and creating conditions for quick rebounds.
On Thursday, the funding rate dipped to -0.001%, the first negative reading in 2025 and a rare occurrence since November. This mild negative rate contrasts sharply with the extreme levels seen during the COVID-19 crash in March 2020, when rates hit -0.309%. The brief dip prompted a leverage flush, resetting sentiment and enabling Bitcoin to reclaim $94,000.
Interpreting Negative Funding Rates
While negative funding rates can indicate potential price bottoms, they do not guarantee immediate reversals. Instead, they should be considered alongside other market indicators and technical tools to form a comprehensive view. Negative rates might signal a prolonged bearish phase rather than an imminent rebound, just as positive rates during bull markets may reflect sustained demand rather than overheating.
Since 2023, Bitcoin’s funding rate has predominantly stayed positive, reflecting the broader bull market. However, brief periods of negative rates have typically coincided with local price bottoms, as seen during the Silicon Valley Bank collapse in 2023 and early 2024. These instances preceded significant price recoveries in subsequent months.
Leverage Flushes and Market Resets
Negative funding rates often emerge when bearish sentiment becomes excessive, leading to over-leveraged short positions. Similarly, positive rates can signal overconfidence among bulls. In both scenarios, a reset occurs as leveraged traders face liquidations, and the market recalibrates.
Thursday’s negative funding rate, though brief, highlights this dynamic, with bears caught offside as Bitcoin quickly rebounded. Such events underscore the delicate balance between bullish and bearish forces in the market and the growing influence of derivatives on Bitcoin’s price action.
