Why Bitcoin Could Face ‘Cascading Pullbacks’ Post-Halving: Analyst

Previously bullish, but potentially painful over the short-term.

That’s how the Bitcoin halving is reflected in the futures market, according to Greg Magadini, Amberdata’s Director of Derivatives. Less than two weeks out from the halving, and he’s seen “a lot of build up” in anticipation of the event that takes place roughly every four years.

“We're about three to five times the risk-free rate, in terms of what people are willing to pay for the cost of capital to get long Bitcoin,” he said. “People are clearly buying the rumor right now.”

Slated to occur on April 20, the halving will reduce miners’ per-block rewards from 6.5 Bitcoin to 3.125 Bitcoin. And historically, as investors come to grip with Bitcoin’s newfound scarcity, Bitcoin’s price has soared in the following months. That being said, Bitcoin’s so-called futures funding rate has made the market vulnerable to “cascading pullbacks,” Magadini said.

“The fundamentals are good, but the market knows this,” he said. “There’s this axiom in the market that the market goes wherever causes the most pain.”

Based on the difference between payments in futures contract markets and spot prices, Magadini said there’s some “susceptible positioning” that could cause Bitcoin’s price to drop if traders who are effectively leveraged long are forced to close positions. If the halving is played by traders as an opportunity to buy the rumor and sell the news, it could happen, Magadini said.

Still, Bitcoin’s spot market still drives the asset’s price, especially with strong flows from spot Bitcoin ETFs, Magadini said. For him, the derivatives market is valuable as a gauge for sentiment among “tactical traders” and how they’ve positioned themselves ahead of the halving. 

“Right now, they’re positioned for perfection,” Magadini said. “The long-term trend — it’s definitely a drift higher — I'm just wondering if we're getting a little too ahead of ourselves.”

When it comes to perpetual futures contracts, which have no expiration date, the funding rate for Bitcoin is near record highs, according to data from CryptoQuant. The last time Bitcoin’s funding rate was this high was in April 2021, and Bitcoin’s price plummeted to $30,000 from $60,000 in the following three months, CoinDesk reported last week.

There are signs that activity in Bitcoin’s futures market is being led by traders in the U.S., which hasn’t been the case heading into halvings before, Magadini said. In terms of open interest, the Chicago Mercantile Exchange now tops the crypto exchange Binance at $10 billion and $8 billion, respectively, according to data from Coinglass.

“At the end of the day, the most developed financial market in the world is still the American markets,”  Magadini said. “Once we have the appetite or ‘animal spirits’ of American investors to get long Bitcoin — beyond just retail — that’s actually a really bullish sign.”