Contrarian Signal Despite Bitcoin’s 40% Rally: Traders Are Paying to Bet on a Drop!

Despite Bitcoin’s 40% rise in the third quarter, futures positioning is nearing its yearly lows, while investors betting on a decline are paying to keep their short positions open.

According to figures reported by CoinDesk using Coinglass data, open interest in Bitcoin futures has fallen to 652,000 BTC, nearing one of its lowest levels of the year. This figure, which represents contracts that have not yet been closed, had reached as high as 800,000 BTC earlier in the year.

The strong price recovery has not been matched by the same level of interest in leveraged trading. With Bitcoin up approximately 40% before the third quarter has even ended, the decline in positions held in the futures market shows that investors remain more cautious in this area.

Why are investors betting on a Bitcoin decline paying?

The annualized average funding rate on perpetual futures at major exchanges has turned negative, at minus 0.3%. Funding refers to periodic payments made between traders holding long and short positions. When the rate is negative, holders of short positions pay those holding long positions.

That means the notable detail in the market is not just the shrinking open interest: Those looking to trade on a decline are incurring a cost to keep their positions open. Negative funding indicates stronger demand on the short side.

The dollar and bond yields are rising

At the time of writing, Bitcoin had fallen approximately 2% over the past 24 hours to $82,800; despite this, it remained more than $20,000 above the cycle low it hit in the summer. Gold also fell 3% over the same period, to around $4,150 per ounce.

The dollar index rose above 101, while the yield on the U.S. 10-year Treasury exceeded 5.2% and the 30-year yield topped 5.51%. Rising yields are making assets that offer regular interest income more attractive than Bitcoin and gold.