Altcoin funding rates hit 9-month high — Bullish for altseason or a red flag?

A select group of altcoins has seen remarkable gains exceeding 250% in the past 30 days, including Hedera (HBAR), Stellar (XLM), XRP, Algorand (ALGO), and Cardano (ADA). This rapid surge has left traders questioning the rally's sustainability and looking for indicators of a potential correction.

Some investors argue that these tokens were trading at substantial discounts relative to their previous all-time highs, leaving room for further upside. However, whether the recent rally is fundamentally justified or not, the heavy use of leverage among buyers raises the risk of sharp price corrections.

The 30-day funding rate for perpetual futures has risen significantly, with bulls paying between 4% and 6% per month to maintain leveraged positions, according to data from CoinGlass. While such costs may seem manageable during strong uptrends, they can quickly erode traders’ margins if prices stagnate or dip. Although seasoned crypto traders might tolerate 5% monthly funding fees, there are practical limits to such costs.

Leverage levels are not high compared to historical peaks

For context, the altcoin rally in February saw some tokens reach 30-day funding rates as high as 25%. These extreme levels are typically short-lived, as arbitrage desks step in to open short positions on perpetual contracts while buying the underlying asset to capture the funding fees without exposure to market risk.

Data from CoinGlass shows that while current funding rates for ADA and XRP stand out compared to the last six months, they remain below their 12-month highs. Historically, this suggests that altcoins may still have room for additional leverage-driven growth. However, funding rates alone are insufficient to guarantee the continuation of the current bull run.

A similar scenario unfolded on Jan. 11, following an 80% surge in altcoin market capitalization over three months. At that time, the 30-day funding rate for most altcoins climbed to 8%. However, this rally came to a halt after a 15% price correction over the two weeks ending Jan. 25. This suggests that funding rate increases tend to be a consequence, not a cause, of bull markets.

What stands out in the current altcoin season is the stark contrast in performance and leverage between altcoins and major cryptocurrencies. Bitcoin (BTC) and Ether (ETH) exhibit 30-day funding rates of just 2.5%, which is relatively conservative given their substantial monthly price gains of 39% and 49%, respectively.

This discrepancy arises partly because investors can leverage BTC and ETH positions through alternative instruments like monthly futures, options, or exchange-traded funds (ETFs). However, other factors have fueled the altcoin frenzy, such as the memecoin boom that saw newly launched tokens hitting record highs.

Tokens like Goatseus Maximus (GOAT), NEIRO, and Cat in a Dog’s World (MEW) briefly surpassed $1 billion in market capitalization. This speculative mania likely elevated the perceived value of altcoin projects with active development and strong community backing. While these valuations may have been overly optimistic, only time will reveal whether they were justified or a passing phase.

Despite the surge in funding rates, there is no immediate threat of cascading liquidations across most altcoins. Current 30-day funding rates of 4% to 6% remain within manageable levels, though elevated leverage continues to warrant caution as volatility persists.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.