Bitcoin Market Sentiment Hits 14-Month High

There is a significant drop in the price of Bitcoin (BTC) as of late 2021 compared to the price in late 2021. Although the market mood is as positive as it was back then, the outlook for this year remains positive.

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A funding rate is a mechanism used by the bitcoin perpetual futures contracts market to maintain the price of bitcoin perpetual futures contracts in sync with the spot price of bitcoin on the market. As long as perpetual futures are trading above spot, the funding rate is positive, which means that holders of bullish longs or buy positions are paying bearish shorts in order to keep their trade open. Perpetuals trade below the spot price when the spot price is higher, which is the opposite of what happens.

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As a gauge of the mood of leverage traders, analysts track the funding rate. As the funding rate rises, traders become more positive about the prospects for price growth and are willing to pay a premium to maintain the upside potential of the trade.

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Data tracked by blockchain analytics firm Glassnode revealed that by Thursday, the annualized bitcoin perpetual funding rate across major exchanges, including Binance, was at 8.491%, its highest level since December 3, 2021.

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The price of a bitcoin back then was about $57,000, or 2.5 times the current market rate of $23,400. November 2021 was the month when the cryptocurrency reached a record high of $69,000.

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In mid-December of last year, the funding rate flipped positive, indicating that the sellers had reached their limit. Since the turn of the year, the cryptocurrency has picked up a strong bid and has rallied over 40% in value since then.

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"In response to the U.S. consumer price index published by December, there has been a clear shift in market sentiment, with funding rates well above average and price volatility on the rise. As stated in a tweet from Dessislava Laneva of Paris-based crypto data provider Kaiko, there has been a noticeable shift in market sentiment.

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There was a 6.5% decline in the CPI in December, which was the sixth consecutive monthly deceleration in price increases. As a result of these data, the markets were convinced that the Federal Reserve would be likely to switch to cutting interest rates later this year in order to boost liquidity.

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The Fed Chair, Jerome Powell, made a statement early this week in which he acknowledged the inflation picture and downplayed concerns related to a severe tightening-induced economic slowdown, thus bolstering the pivot's prospects.

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A Look at US Nonfarm Payrolls

Based on the estimates Reuters sourced from FXStreet, the nonfarm payrolls report for the U.S. is expected to show a job growth of 185,000 in January following a 223,000 increase in December, according to Reuters estimates scheduled for release at 13:30 UTC.

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As the unemployment rate is expected to tick slightly higher to 3.6% in January, average hourly earnings, or wage growth, is expected to print at 4.9% year on year as a result of December's 4.6% increase year on year.

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Combined with the headline jobs figure, a notable increase in average hourly earnings may cause investors to reconsider the possibility that the Fed will keep interest rates at a higher level for a longer period of time and to scale back their bullish positions in risk assets, including cryptocurrency.