Data shows that Ethereum’s funding rate has fallen into the negative zone. Here’s what’s typically followed this trend over the past couple of months.
Ethereum funding rate suggests traders are now bearish
As analytics firm Santiment explains in a new article on X, shorts now dominate the Ethereum derivatives market. The relevant indicator here is the “funding rate”, which measures the amount of periodic fees that traders exchange with each other on different derivatives platforms.
When the value of this measure is positive, it means that holders of long positions are paying a premium to those who went short in order to maintain their positions. Such a trend implies that bullish sentiment dominates.
On the other hand, the fact that the indicator is below zero suggests that derivatives traders as a whole might have a bearish mentality as short positions outweigh long positions.
Now here is the chart shared by Santiment which shows the Ethereum funding rate trend across all exchanges over the last two months:
Looks like the value of the metric has been negative in recent days | Source: Santiment on X
As shown in the chart above, Ethereum’s funding rate has recently seen a decline into the negative zone, implying that the balance of the derivatives market has shifted towards bearish positions.
However, market sentiment turning red may not actually be negative for the cryptocurrency price. In the chart, the analytics company highlighted the trend followed by the asset with this metric over the past two months.
It appears that ETH tends to go against the funding rate in this window. That is, a notable positive level led to price corrections, while a negative level led to price rebounds.
The explanation for this trend may be that the dominant side of the market is more likely to become embroiled in a sell-off. Such an event tends to be violent, involving a cascade of liquidations that feeds back into price volatility.
Although Ethereum’s funding rate has turned red, its value is still not as negative as some of the previous lows that resulted in short squeezes, so it only remains to be seen whether it will follow suit this time around.
Separately, Ethereum saw significant exchange net outflows of approximately $643 million over the past week, as revealed by institutional DeFi solutions provider Sentora in an X article.
The outflows BTC and ETH have seen during the past week | Source: Sentora on X
Bitcoin saw even larger exchange withdrawals of over $2 billion. “This is a strong bullish signal despite market uncertainty as investors place coins in custodianship for long-term holding,” Sentora explained.
ETH Price
At the time of writing, Ethereum is trading around $3,850, up more than 2% in the last 24 hours.
The price of the coin appears to have been going down over the last few days | Source: ETHUSDT on TradingView
Featured image from Dall-E, Santiment.net, Sentora.com, chart from TradingView.com
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