Bitcoin (BTC) fell early Monday, validating the caution signaled by the options market last week.
The 4% drop to $42,000 has cooled the overheated crypto perpetual futures market, clearing the way for a steady ascent into the year-end.
Perpetuals are futures with no expiry with a funding rate mechanism that helps tether perpetual prices to the index price. Funding rates are periodic payments of an asset between long (buy) and short (sell) position holders calculated and collected by exchanges every eight hours. A positive funding rate means the perpetual contract is trading at a premium to the spot prices; longs are dominant and are paying shorts to keep their positions open. A negative rate suggests otherwise.
A high funding rate, typically greater than 0.10% (for eight hours), is taken to represent excess bullish leverage or overcrowding of long positions.