Following the liquidation of contracts valued at $370 million, the funding rate for Bitcoin perpetual futures has been adjusted. Is that encouraging?

Between March 14 and March 17, the price of Bitcoin (BTC) dropped by 12.5% to $64,545. This resulted in heavy purchasing activity around the $65,000 mark. Though the excessive leverage in Bitcoin futures has been eliminated, investors continue to question if BTC will be able to surpass its all-time high of $73,755. At the moment, opinions are divided.

The Federal Reserve’s monetary policy meeting is the focus of attention.

Despite the general belief that interest rates will stay the same, many think investors will only increase their cryptocurrency holdings after the US Federal Reserve’s monetary policy meeting on March 20. This choice is based on the Fed’s continued confidence in the economy’s strength rather than just short-term factors.

When the Federal Reserve stops shrinking its $7.5 trillion balance sheet, it is another significant question mark for Bitcoin investors. More money in circulation usually translates into a more expansive Fed monetary policy, which is good for riskier assets.

Within the banking system, currency and reserves are represented by the US monetary base. Usually, higher interest rates are intended to bring this number down or stabilize it. This contractionary economic approach typically aids in containing inflation by making it harder for companies to borrow money and expand.

According to several observers, a significant factor in Bitcoin’s possible boom in 2024 will be the Fed’s shift from a contractionary to an expansive monetary policy. Signs of an impending recession or inflation below 3% may cause this change. That means there is less chance of a Bitcoin boom if interest rates stay high for a long time.

Demand for stablecoins in Asia and Bitcoin futures suggests a robust recovery.

Investors in Bitcoin have also expressed anxiety due to excessive leverage, especially as open interest in BTC futures reached a record high in March of $35.5 billion on March 14 compared to $22.2 billion on February 25—furthermore, the mismatch in the demand for leverage produced distortions that are rarely maintainable.

Inverse swaps, sometimes called perpetual contracts, have a rate updated every eight hours. A positive funding rate indicates an increased desire for leverage among long-position holders.

On March 11, a very high funding rate of 0.09%—or 1.7% each week—was noted. From March 13 to March 15, bulls had to deal with $370 million in liquidations, which caused this indicator to drop. These numbers might appear noteworthy at first, but when you realize that Bitcoin’s open interest is $34.8 billion, that means that about 1% of positions are being forcefully closed.

Interestingly, on March 15, Bitcoin’s funding rate fell to 0.25% each week, regarded as neutral in a market where traders are usually optimistic. As a result, it appears that there was not an overwhelming desire for short positions, indicating that bears were cautious to wager against a drop in Bitcoin values below $65,000.

It’s crucial to correlate this data with the demand for stablecoins in China, a vital sign of retail investors joining or leaving the crypto markets, to confirm whether the decline in demand for leveraged long positions appropriately represents market sentiment. The difference between the value of USDC in peer-to-peer transactions and the official US dollar rate is measured by the USD Coin USDC tickers down $1.00 premium.

For the previous week, the USDC premium has been above 3%, suggesting that the stablecoin is trading at a price higher than its fixed rate. Most remarkably, despite the recent price decline to $64,545 on March 17, this premium has remained the same as its fair value.

This pattern supports the positive Bitcoin financing rate that encourages long positions and shows no evidence of a bearish trend or investor trepidation. It also indicates that there is still a need for cryptocurrencies in China.