A CryptoQuant analyst, MAC_D, suggests that a sharp decline in Bitcoin‘s (BTC) price and funding rates could present a buying opportunity that may boost the cryptocurrency’s value. He notes that leveraged long positions had piled up, causing funding rates to spike to 0.049% on January 2nd, during anticipation of the SEC’s decision on a BTC Spot ETF.
Despite recent price movements, a bullish market sentiment persisted with BTC’s funding rate at 0.001%. MAC_D believes that the current downtrend would require a capitulation event, marked by a mass liquidation of these long positions, to conclude.
Sharp price drops and a shift to negative funding rates on an hourly chart could signify that leveraged investors are overly pessimistic, potentially making it an opportune time to buy back into BTC.
For BTC to witness an upward price correction, it would need a significant price drop and negative funding rates on the hourly chart. While this might indicate widespread pessimism among leveraged investors, it could offer a buying opportunity for those with a longer-term investment horizon. At the time of writing, BTC was trading at $39,956, having dropped 13% since the trading of BTC ETFs started on January 10th, according to CoinMarketCap.
The mentioned price decline may be due to increased profit-taking activities, leading to a rise in the token’s exchange reserves. Since January 10th, the total BTC held on exchanges increased by 0.47%. CryptoQuant reported 2.1 million BTC on exchanges at the time of writing, and as token sales increased, the profitability of daily BTC transactions decreased, with the daily profit/loss ratio of BTC transaction volume falling by 10% since January 10th, according to Santiment data.