HomeBITCOINWhat Does it Mean for Ethereum as Funding Rates Plummet?

What Does it Mean for Ethereum as Funding Rates Plummet?

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Data shows that the Ethereum funding rates have been negative recently. This could have implications for the price of the cryptocurrency.

Ethereum Funding Rates in Negative Territory

An analyst from CryptoQuant suggests that a short squeeze could be a possibility for Ethereum. The “funding rate” is an indicator that tracks the fees exchanged between traders on the futures market. A positive value indicates that long contract holders are paying a premium to short holders, indicating a bullish sentiment. Conversely, negative values suggest a bearish sentiment as shorts are paying a fee.

Here is a chart depicting the trend in Ethereum funding rates over the past week:

Looks like the value of the metric has been quite negative in recent days | Source: CryptoQuant

As shown in the graph, Ethereum funding rates were positive until a couple of days ago, indicating a bullish sentiment. However, the metric has since turned negative, indicating a shift in investor mentality.

This bearish sentiment may not necessarily be detrimental to the price. Historically, when the sentiment becomes significantly skewed in one direction, there is a higher likelihood of a sharp move in the opposite direction. This is because mass liquidation events, commonly known as “squeezes,” often involve the dominant side of the futures market. As shorts have accumulated in the Ethereum futures market, the probability of a short squeeze occurring increases. If such an event happens, the asset’s value could experience a sharp rebound.

However, it is important to note that this is not guaranteed to happen, and even if it does, it may not occur in the near future. The chart indicates that the funding rate remained positive for a considerable period before the plunge in ETH price.

ETH Price

Over the past week, Ethereum’s price has declined by more than 3%, and it is currently trading below the $1,600 level.

Ethereum Price Chart

ETH has gone down in the last few days | Source: ETHUSD on TradingView

Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com

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