The market has turned bearish! Funding rates are turning negative across the board!

Bitcoin temporarily fell below $92,000, with mainstream exchange funding rates turning fully negative across the board, and market sentiment turning bearish like a rising tide. Is this a short-term correction or a sign of trend reversal?

Data shows that after recent market pullbacks, Bitcoin briefly broke below the key level of $92,000 on the morning of January 20.

Meanwhile, a key indicator measuring market bullishness and bearishness—the perpetual contract funding rate—has turned negative across major centralized and decentralized exchanges, indicating that market sentiment has shifted from generally bullish to fully bearish.

1. Market Dynamics

● The cryptocurrency market has recently experienced a significant correction. On the morning of January 20, 2026, Bitcoin’s price briefly fell below the $92,000 threshold. This is the first major price adjustment since the end of last year. At the same time, market sentiment indicators have also shifted accordingly. Previously positive funding rates for mainstream cryptocurrencies have started to turn negative, signaling a shift from optimism to caution or even pessimism.

● This change did not happen suddenly. As early as January 13, market analysis indicated that funding rates were rapidly returning to neutral, but rates for BTC, some popular altcoins, BCH, and ZEC remained relatively low, suggesting that the bearish sentiment had not fully dissipated.

● By January 17, funding rates on major exchanges clearly showed a market leaning towards bearish sentiment, with even stronger bearishness toward altcoins.

2. What is the Funding Rate?

● The funding rate is a mechanism set by cryptocurrency trading platforms to keep perpetual contract prices aligned with the underlying asset prices. It essentially involves the exchange of funds between long and short traders, not a fee charged by the exchange.

● This mechanism settles every 8 hours. When the funding rate is positive, longs pay shorts; when negative, the opposite occurs. The value of the funding rate directly reflects the balance of bullish and bearish forces in the market. Industry standards often use 0.01% as a baseline: above 0.01% indicates a generally bullish market, below 0.005% indicates a generally bearish market.

● Extreme positive or negative funding rates often signal overly one-sided market sentiment, potentially indicating an upcoming reversal.

3. Signs of a Fully Bearish Market

● The current crypto market shows signs of being fully bearish. According to the latest data, both Bitcoin and Ethereum, the two major cryptocurrencies, are experiencing negative funding rates. This phenomenon is widespread across both major centralized exchanges (CEX) and decentralized exchanges (DEX), indicating that bearish sentiment has fully permeated the market.

● It is worth noting that the degree of bearishness varies among different coins. The bearish sentiment for Bitcoin and Ethereum is relatively restrained, while that for altcoins is more intense. This divergence may reflect investors’ risk-averse behavior, preferring to reduce holdings in more volatile assets.

● Market analysts point out that the rapid return of funding rates to neutral or negative levels suggests the market is digesting previous negative sentiment. This shift often accompanies increased short-term price volatility but also creates conditions for subsequent trend development.

4. The Roots of Bearish Sentiment

The overall shift to bearish in the crypto market is driven by multiple factors. Regulatory tightening is a key catalyst.

● The U.S. Senate has submitted over 130 amendments to advance the CLARITY Act, indicating ongoing discussions about crypto regulation. Meanwhile, Senator Warren has publicly called for a pause on certain banking license applications until relevant stakeholders complete asset divestments, reflecting regulatory concerns over potential conflicts of interest.

● The performance of traditional financial markets also influences crypto sentiment. Recently, the three major U.S. stock indices declined collectively. Although crypto-related stocks rebounded on Bitcoin’s rally, the overall cautious attitude in traditional markets continues to exert pressure on cryptocurrencies.

● Expectations among institutional investors have also shifted, intensifying bearish sentiment. While Fundstrat’s Tom Lee has publicly expressed optimism about Bitcoin and Ethereum, internal company memos suggest a 2026 crypto strategy warning of possible “significant pullbacks.”

This divergence of opinions adds to market uncertainty.

5. Multi-Dimensional Market Analysis

To fully understand the current market situation, it is necessary to analyze funding rates in conjunction with other derivatives indicators. Here are some key metrics for comparison:

● Funding Rate: Currently fully negative, indicating bearish sentiment. Open interest: still high, reflecting active market participation but uncertain direction. Long/short ratio: has fallen from high levels, showing reduced long positions. Liquidation data: closely watch key price levels, which could trigger chain reactions.

● The combined analysis of open interest and funding rates can reveal leverage flow in the crypto market. In early 2026, major cryptocurrencies maintained positive funding rates across derivatives platforms, with Bitcoin’s annualized average at 0.51% and Ethereum at 0.56%.

Now, these indicators have all turned negative, indicating a significant change in leverage structure.

● The long/short ratio is a core indicator for trend reversal. When this ratio approaches historical highs, it often signals overbought bullish sentiment, which can lead to short-term pullbacks after excessive optimism. Recently, Bitcoin’s long/short ratio has declined from high levels, showing traders are taking profits and actively reducing leverage risk.

● The put-call ratio in options markets also provides valuable insights. When this ratio is below 1, it indicates that traders are buying more call options than protective puts, suggesting that even if the market appears panicked, the actual positioning remains predominantly bullish.

6. Funding Rates from the DEX Perspective

● Changes in funding rates on decentralized exchanges (DEX) are also noteworthy. Compared to centralized exchanges, DEX derivatives emphasize asset self-management and smart contract transparency. Although liquidity is lower, signal maturity is steadily improving.

● Currently, funding rates on mainstream DEXs also show bearish tendencies, resonating with CEX data. This consistency enhances the credibility of the bearish signal.

● The operational mechanisms of DEXs differ from centralized ones. For example, Uniswap, an Ethereum-based decentralized trading protocol, allows users to trade tokens directly from their wallets without registration or custody of assets. The funding rate data generated under this architecture may more purely reflect the true expectations of market participants.

● The significance of DEX funding rate data lies in providing an emotion indicator within decentralized finance, corroborating CEX data and offering a more comprehensive view of overall market sentiment. The synchronized turn to negative funding rates across CEX and DEX indicates that bearish sentiment has fully infiltrated the crypto market, beyond just short-term behavior of centralized exchange participants.

7. Historical Patterns and Current Position

Looking back at crypto market history, extreme funding rate values often precede market turning points. When funding rates stay high, it indicates excessive leverage among longs, increasing overheating risks, often followed by adjustments.

● Conversely, when funding rates stay negative and reach extreme levels, it may signal oversold conditions, creating a rebound opportunity. The market structure in early 2026 differs somewhat from past extremes. Previously, the market maintained a bullish stance without excessive leverage concentration, avoiding chain-reaction liquidations.

● The current process of funding rate shifting from positive to negative may reflect a transition from “rational optimism” to “cautious pessimism.” Unlike past scenarios where extreme optimism directly turned into panic, this shift appears more gradual and orderly.

● This relatively moderate change in sentiment suggests subsequent market adjustments may also be more orderly rather than abrupt crashes.

● From a long-term perspective of price and funding rate relationships, Bitcoin often continues to rise after funding rates return to neutral. The key is whether funding rates can break through neutrality and sustain upward momentum. If they do, a durable rebound is likely; if not, the market may enter a longer correction cycle.

The crypto market is experiencing an emotional cooling. Funding rates have turned negative from highs, Bitcoin briefly broke below a key level, and market participants are reassessing the risk-reward balance.

From regulatory pressures to traditional market volatility, multiple factors intertwine to create the current cautious atmosphere. But seasoned traders know that extreme sentiment indicators are often signals before dawn. When funding rates stay negative and open interest steadily declines, the market may be quietly building the next phase.

The market’s pendulum never stops at an extreme. The next swing in the crypto market may have already quietly begun.