Futures Funding Rates Normalize After Crypto Surge Forced Traders to Pay High Fees to Maintain Long Positions
Funding rates on major token futures have started to return to normal levels after recent rally forced traders to pay unusually high fees to sustain their long positions.
Amid the recent surge in crypto prices, open interest in futures skyrocketed to over $35 billion, according to data by CoinGlass .
The data shows a nearly 40% increase from the end of October, when open interest stood at $24 billion.
With the leveraged positions piling up, funding levels reached some of the highest levels seen in recent months.
Funding rates are periodic payments made by traders based on the price difference between futures and spot markets.
According to data, traders were paying fees ranging from 0.2% to 0.5% every eight hours on their borrowed funds to maintain their long positions, which translated to speculators paying up to 50 cents to exchanges for every $100 position held.
However, some market observers warned of a potential market downturn as traders were increasingly incentivized to take short positions or bet against further price increases.
Such positions would earn fees from those who were going long. In futures trading, when funding is positive, longs pay shorts, and the opposite occurs when funding is negative.
This situation likely contributed to the market drop witnessed on Tuesday, as traders took profits following a week-long upward trend, which led to nearly 90% of bullish bets being liquidated, totaling over $300 million.
Bitcoin (BTC) traders alone lost $120 million as prices declined by 4%.
Ethereum (ETH) traders faced losses of $63 million, while XRP and Solana’s SOL-tracked futures witnessed over $30 million in cumulative liquidations.
Liquidation occurs when an exchange forcibly closes a
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