Former BitMEX exchange CEO Arthur Hayes recently took to Twitter to find an explanation for chaotic market trends.
Even though Bitcoin has rallied nearly 100% following the negative fallout from the FTX trading platform crash, funding rates have remained negative. Hayes asked followers:
“Is there a theory that can explain why the funding rate remains negative forever after BTC rose almost 100% after FTX?”
Any theories on why after pumping almost 100% $bitcoin Perp funds still negative after FTX? Which groups in the market are experiencing marginal selling pressure? pic.twitter.com/X2Cejiz7et
— Arthur Hayes (@CryptoHayes) April 13, 2023
To understand the significance of the Hayes problem, the perpetual funding rate must be clearly understood.
The perpetual funding rate is a tool used by cryptocurrency derivatives exchanges to keep the price of the perpetual contract consistent with the spot price of the underlying asset.
If the funding rate is positive, the long contract holder will compensate the short contract holder, while in the event of a negative funding rate, the short contract holder will pay the long contract holder.
The permanently negative funding rate observed by Hayes suggests that the market is mostly bearish, even though the price of Bitcoin has nearly doubled since the FTX event. This situation raises questions about the source of marginal selling pressure to offset the bullish momentum.
Some factors that can contribute to this phenomenon are that short traders may take advantage of price spikes to sell their positions, creating a temporary imbalance between buyers and sellers.
This selling pressure may be temporary and funding rates may return to positive territory as more investors enter the market.
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