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Mining profits, volatility to push crypto prices higher: analysts

18:37, 2 November 2021

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Economic conditions favour rising cryptocurrency values - Photo: Shutterstock

Cryptocurrency analysts suggest that increased mining profits and decreased market volatility are set to push prices higher, despite falling funding rates.

At 1 pm EDT, Bitcoin was up more than 4.7% to $63,700 per unit while other popular assets like Ethereum and Solana were up 4.89% and 5.74%, respectively.

Mining profits

One reason analysts are bullish on crypto prices is that miners are reaping high profit margins on favourable economic conditions.

DA Davidson analyst Christopher Brendler wrote in a note published at the end of October that miners could see profit margins as high as 90.8% in 2022 as they “invest heavily in power, machines, and technology.”

Meanwhile, mining companies like Bitfarm and Marathon Digital Holdings are reaping the rewards of the profitable prospects.

At 2 pm EDT, Bitfarm shares were up 11.3% to $6.20 compared to Marathon’s rise of 9.84% to $60.97.

Funding rates

While mining profits have been on the rise, crypto funding rates have been falling.

According to a data guide from CryptoQuant, funding rates are “periodic payments to long or short traders based on the difference between the perpetual contract market and the spot price.” Each crypto exchange uses their own funding rates, and they are often interpreted as signs of investor sentiment. For example, when funding rates are negative, sentiment is usually seen as bearish.

The average funding rate for bitcoin stands at 0.06%, down from according to trading data by Bybt.

Ashwath Balakrishnan, an analyst at Delphi Digital, wrote in a note published on Monday that the falling funding rates are leading bulls to buy every dip they can find.

“However, this implies a higher degree of long leverage, and so yet another ‘long squeeze’ can’t be ruled out,” Balakrishnan wrote.

Volatility

Adding to the bullish sentiment the crypto market is exuding is a lower implied volatility, Balakrishnan said.

He added the market seems comfortable with Bitcoin’s recent movement since there has not been a surge in volatility following Bitcoin’s recent rise above the $67,000 water mark.

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However, if the asset drags volatility up as it rises past $67,000, Balakrishnan says it would indicate another short-term pullback is imminent.

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