• The crypto perpetual futures market has seen funding rates normalized after Bitcoin’s overnight drop from record highs.
  • One observer believes that the market may continue to cool down in the next few weeks.

BTC Price Index and Live Chart – CoinDesk”>(BTC) overnight pullback from new record highs has cleared out excess leverage from the market, normalizing funding rates in the crypto perpetual futures market.

After reaching a new high for its lifetime over $69,000, the leading cryptocurrency in terms of market value dropped by 10% to $59.700. The correction forced the closure of $1 billion in leveraged perpetual futures on digital asset markets.

The CoinDesk 20 Index, a broad market gauge, reached a peak of $2,627 Tuesday, and has since fallen to $2,496.

Since then, annualized funding rates, or the cost to hold leveraged bets on perpetual futures linked to the 25 top cryptocurrencies, have reset to less that 20%. This is a significant drop from triple digit figures observed just a few short days ago.

The overheated market for perpetual futures has cooled down, allowing a longer-term move towards record highs. Early this week, funding rates soared over 100% as investors jumped in with both hands to take advantage of bitcoin’s bullish momentum.

Exchanges use funding rates to align perpetuals with spot prices. Positive funding rates indicate that perpetuals trade at a premium over the spot price. This indicates increased demand for bullish wagers. A high funding rate as seen in the beginning of this week is often attributed to over-optimism.

(Velo Data) (Velo Data) The overnight drop in bitcoin price has normalized funding rates. (Velo Data) (Velo Data)

Velo Data’s chart shows that funding rates of the 25 most popular cryptocurrencies ranged from mildly to moderately positive, up to 150% over the last week.

The most recent reading of the majority of coins is less than 20%.

John Glover is the chief investment officer of Ledn. He believes that the market will continue to deleverage over the next few weeks, pushing bitcoin back to $40,000

The euphoria around the recent rally of BTC prices reminds me a lot of the last time that we traded at $65k. Many people will say that the selloff that occurred post-November 2020 (and before that after April 2021), was caused by bad players. I would argue, however, that it was caused by people who were over-leveraged and had unrealistic expectations of a straight-line increase to $100,000,” Glover wrote in an email.

“I think we’re back in that situation, and I believe we’ll see a correction to the mid-to low $40,000 range in the next few weeks. Glover said that things always look bullish when they are at their peak.

Parikshit Miishra is the editor.