Mar 31, 2022 • 9 Min Read

Weekly Recap

It was another week of green candles across the crypto ecosystem as bitcoin flirted with its 200-day moving average for the first time in several months.

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Like last week, the more speculative sectors outperformed the prior 7-days, with the once-beleaguered DeFi sector continuing to turn some heads.

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Source: Messari

Below we examine some of the reasons we think that this relief rally mirrors those seen in late 2021 and why this rally might have some legs on it.

No Signs of Overextension

A good barometer of whether a rally is sustainable or not is how traders are positioned. While every trade has a long position that counters every short, we can reasonably ascertain whether the market is positioned “net-short” or “net-long” using funding rates for perpetual futures contracts as a proxy for demand for a particular side of the trade.

As a reminder, high funding rates indicate increased demand for long positions – longs are paying shorts to take the other side of the trade. Conversely, negative rates indicate increased demand for the short side of the trade.

Below, if we plot rolling 30-day daily returns with rolling 30-day average funding rates, we can see a somewhat predictable pattern emerge where consistent daily returns result...

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