According to cryptocurrency expert K33 Research, a signal in the Bitcoin derivatives market indicates that the risk of &#34;short covering&#34; is rising, which could lead to a significant rebound in the largest digital asset.
This indicator is the funding rate of Bitcoin perpetual futures, which helps measure the extent of speculation on bullish or bearish views. K33 stated that the 7-day average annualized funding rate on August 20 was at its lowest level since March 2023, when a wave of bank failures in the United States shocked investors and bearish bets prevailed.
K33 analysts Vetle Lunde and David Zimmerman wrote in a report, &#34;Over the past week, the average funding rate for perpetual contracts has been negative, with a significant increase in open interest, indicating that investors are aggressively taking short positions, structurally creating conditions favorable for short covering.&#34;
The so-called short covering refers to an unexpected price surge that will force short traders to close their bearish bets, thereby fueling a rebound. Recently, the atmosphere in the Bitcoin market has been subdued, as Mt.Gox started repaying Bitcoin and concerns about the US government selling its seized tokens have led to a &#34;painful August&#34; for this digital asset, struggling to stay above $60,000. Meanwhile, global stock indices have rebounded to near historic highs, and gold has also hit new highs.
K33 stated that in the past week, the nominal open interest in the perpetual contract market increased by the equivalent of nearly 29,000 Bitcoins. The 7-day average annualized funding rate on August 20 was -2.5%. Lunde and Zimmerman stated that this rapid increase in open interest and negative funding rate is a relatively rare backdrop.
Perpetual contracts are widely popular among speculators in the cryptocurrency field because they have no expiration date. Trading activity in the more traditional Bitcoin futures market at the Chicago Mercantile Exchange has also been on the rise, indicating a potential re-engagement of US institutional investors.
It is worth noting that Binance and its former CEO Zhao Changpeng are currently facing a new collective lawsuit from three cryptocurrency investors who claim that they were unable to recover stolen assets due to the exchange's failure to prevent money laundering.
In a collective lawsuit filed on August 16 in the US District Court for the Western District of Washington in Seattle, the plaintiffs claim that their cryptocurrency was stolen, and the funds were sent to Binance by the thieves to &#34;break the link between the ledger and the digital assets,&#34; making it untraceable.
Bill Hughes, Senior Counsel and Global Regulatory Affairs Director at Ethereum development company Consensys, expressed &#34;doubt&#34; about whether this lawsuit can prove these allegations. In a post on August 20, Hughes stated that the new collective lawsuit is a &#34;natural, predictable follow-up civil action&#34; aimed at leveraging government prosecutions. However, Hughes also mentioned that the lawsuit puts Binance in a &#34;difficult position&#34; and stated that if the district court decides to hold a trial, it could have a significant impact on the crypto industry
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Zhao Changpeng admitted to violating the US anti-money laundering law in November 2023 and resigned as CEO of Binance as part of a settlement with the authorities. Binance agreed to pay a $4.3 billion fine for &#34;civil regulatory enforcement actions.&#34;
In April of this year, a federal judge sentenced Zhao Changpeng to 4 months in prison, shorter than the 3 years requested by federal prosecutors. He began serving his sentence in June and will be released in September

According to the analysis by K33 Research, the Bitcoin derivatives market is facing the risk of "short covering," which may drive a rebound in Bitcoin. Data shows that the funding rate for perpetual futures is at its lowest level since March 2023, and the number of open positions has increased by nearly 29,000 bitcoins. Analysts point out that this negative funding rate and the rapid increase in open positions will prompt traders to close out their bearish bets. In addition, trading activity by U.S. institutional investors in the Bitcoin futures market is also on the rise. Meanwhile, the former CEO of Binance is facing a new class-action lawsuit

- K33 Research suggests a rising risk of "short squeeze" in the Bitcoin derivatives market, potentially triggering a significant rebound in the largest digital asset. The average annualized funding rate for perpetual futures hit its lowest level since March 2023, indicating aggressive short positions favoring a short squeeze. Recent market conditions have been subdued due to Mt. Gox's Bitcoin repayments and concerns over the US government selling seized tokens, contributing to a challenging August for Bitcoin.
- The increase in open interest and negative funding rates in the perpetual futures market is a relatively rare scenario, hinting at favorable conditions for a short squeeze. While traditional Bitcoin futures on the Chicago Mercantile Exchange have seen increased activity, the involvement of US institutional investors may be on the rise. Binance and its former CEO, Changpeng Zhao, are facing a new collective lawsuit from three cryptocurrency investors over alleged money laundering issues, potentially impacting the crypto industry significantly.
- The lawsuit against Binance and Zhao, filed in a US court, accuses the exchange of aiding in money laundering by allowing stolen assets to be transferred, posing challenges for the exchange. Zhao admitted to violating US anti-money laundering laws in November 2023, stepping down as CEO as part of a settlement that included a $4.3 billion fine. Despite Zhao's upcoming release in September after serving a shortened prison term, the lawsuit's implications on the crypto industry remain uncertain.

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