Bitcoin fell from its $52,000 support level on April 22. Its futures contracts funding rate also ventured into negative territory. This isn't common. It leads to investors betting on the price dropping. Doing that requires investors to submit a fee every eight hours. The rate itself is a little problematic and leads to arbitrage incentives for perpetual contracts. The less it costs for long-term leverage, the better the incentive for the bullish investors to open their positions. This is the bear trap.
A negative funding rate is unusual. It doesn't typically last for a long time. It shouldn't be used on its own to make a prediction. Futures contracts usually trade at a premium in a bull market. That's true for all assets. However, cryptocurrencies have gone through a 60% premium recently, and that's optimistic. Monthly futures don't have a funding rate. This means their prices can vary wildly from spot exchanges. The contracts eliminate rate fluctuation. They're good for a long-term holding.
Those who bought futures with the expectation of a rally at prices higher than $64,900 had an incentive to cut. A 30% premium to open a long position is prohibitive for most investors, even the big ones. For example, if someone uses a $60,000 call option for June 25, it will cost them $4,362. The price would have to exceed $64,432 in order for the buyer to turn a profit. That's a 19.7% price increase in just two months. Anything is possible, but that type of return seems unlikely. However, it has happened.
The call option for a contract makes less sense than the 3% futures premium. If Bitcoin does reach that $64,432 level, a 5x leverage would yield a 120% gain for that investor.. However, Bitcoin's price would have to go up to $77,750 for that $60,000 call option buyer to make any money. What all of this comes down to is that investors don't have much of a reason to celebrate the 27% price correction Bitcoin has had over the past nine days. When bull costs are low, the incentives just make a bear trap.