Trading back above $82,000 on Wednesday, bitcoin (BTC) has reached its highest level in over three months, while the longest negative funding streak this decade could amplify short squeeze risk, according to research and brokerage firm K33.
The 67 consecutive days of negative 30-day average funding rates, surpassing the run from March 15 to May 16 in 2020, reflect persistent defensive positioning in the market despite bitcoin trending higher, K33 Head of Research Vetle Lunde noted in a new report.
"Historically, sustained periods of negative funding have often occurred near market bottoms, suggesting that conditions like the current tend to have a positive directional impact on the BTC," he said.
Data from similar funding regimes has consistently led to strong forward returns, with win rates higher compared to buying on any random day, per the report, improving across longer holding periods.
"This reinforces the idea that negative funding reflects overly cautious sentiment that tends to resolve to the upside," Lunde stated.
Returns are not just higher, but more consistent, with both average and median results outperforming broader market entry strategies, according to K33's data.
From a 30-day to 360-day perspective, investors buying bitcoin during negative 30-day funding rate periods have experienced a win rate of 83% to 96%, while investors randomly buying at any date between October 2018 and now have a win rate of 55% to 70%, Lunde noted. Median and average returns after buying in negative funding environments beat random buying by multiples of 1.84x to 6.27x, per the data.
"This highlights that buying BTC in environments such as the current has a far more favorable skew to the upside than buying BTC randomly," he said.
The negative funding regime is also useful from a timing and risk aversion perspective, Lunde argued, with the average max drawdown from buying bitcoin in negative funding rate environments lower across all time horizons and spending less average time underwater.
"All past regimes mirroring the current have proven to be very attractive areas to allocate with conviction, and this is not an analysis derived from a technical pattern, but from concrete rates paid by actual traders in derivatives, thus reflecting an honest depiction of market sentiment," Lunde concluded.
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