Since bitcoin’s inception, bull and bear markets have been a natural part of its growth. However, as with anything that lasts a long time, the market has evolved, and so has the concentration of various things in the market. One such change has been in the form of funding rates and how much of them was controlled by different exchanges. In the last bear market, BitMEX had proved to be an important part of the bear market, but things have changed.
BitMEX Dominance Drops
Now, derivatives have become more popular among bitcoin and crypto users over the past year. However, they are still very complex to the extent that the instruments used to fund the calculations for different platforms can vary greatly. This further boosts the collateral structure of each platform’s derivatives.
In 2017/2018, when the bear market had consolidated, BitMEX had been at the forefront of the derivatives market. A report by Arcane Research uses the first 318 days after the start of the 2018 bear market, where it found that the crypto exchange had accounted for more than half of all derivatives volume at that time. Cumulative funding rates had also been seen reaching -0.46%, which, today, tells a very different story.
Funding rates from two cycle peaks | Source: Arcane Research
However, over the years, the crypto exchange has lost its dominance of the derivatives market share. As more prominent competitors emerged, BitMEX has seen its share of bitcoin open interest drop to 3.3% and its cumulative funding rate drop another 1.46% in today’s market. This means that the crypto exchange is now much less important to the bitcoin bear market than before.
Impact on Bitcoin
Looking back at bitcoin’s performance in perpetual markets, it appears to be the opposite of the last bear market. The first example of this is that in the bear market of 2018, BitMEX funding rates stood at 0.46%. At this time, funding rates were very volatile and the short was mostly paying the short.
BTC recovers to $19,100 | Source: BTCUSD on TradingView.com
However, in today’s market, the reverse has been the case. The report shows that shorting the BTCUSDT perp pair since November 10 would result in a return of 5.25% from today. This goes against the trend of 2018, and now the longs are paying off the shorts.
It’s also important to note that funding rates in the last bear market were actually more volatile than they are today. For example, BitMEX had bottomed out at -12.15% in accumulated funding rates during the peak of the cycle in 2019.
Featured image from Coingape, charts from Arcane Research and TradingView.com
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