Bitcoin Price Fall Cools off Overheated Market: BTC Prepares for a Stable Rise

Bitcoin's (BTC) price dropped by 4% to $42,000 in the early hours of Monday. This fall has cooled down the overheated crypto perpetual futures market, this was hinted at by last week's options market. Experts believe this change could allow a stable rise in Bitcoin's value as the year ends.

Perpetual futures are non-expiring futures contracts with a funding rate mechanism to balance prices. These funding rates are payments exchanged between buyers (longs) and sellers (shorts) and are adjusted every eight hours. A high funding rate usually means a market is too bullish and maybe overheated.

Market Signals from High Funding Rates

Last week, funding rates for BTC and other major cryptocurrencies hit high levels (around 0.15%), indicating an overly bullish market. However, with the recent price drop most over-leveraged traders have been shaken out of the market, and these rates have come back to healthier levels below 0.1%. 

The notional open interest in the overall crypto futures market has decreased, meaning there's less money in open futures contracts. Open interest in bitcoin and ether was down 1.3% and 6.7%, respectively, which could mean there’s an adjustment in the overall crypto market