Onchain data suggests that an Ethereum short squeeze may be imminent as ETH funding rates reach 14 month low.
On-chain analytics platform Cryptoquant has revealed that the ETH funding rate is now at a 14-month low. The data shows that funding rates have plummeted to levels recorded in July 2021.
Implications Of A Negative ETH Funding Rate
Funding rate is an indicator that shows the periodic fee that traders are currently exchanging with one another on the Ethereum futures market. It is determined by the price differential between a perpetual futures contract and an asset’s spot price.
Usually, a negative value indicates short traders are paying long traders money to hold their positions. This trend generally points to bearish sentiments within the markets. On the other hand, when the rates are positive, long traders overwhelm the shorts, implying that the overall market trend is bullish.
The last time the Ethereum funding rate reached its current level in July 2021 caused a short squeeze as prices surged upwards. Therefore, a similar occurrence may be imminent within the crypto market, currently seeing extremely low funding rates.
An Ethereum short squeeze is an upward movement in the prices of ETH in an overleveraged market, causing liquidations to a large number of shorts. The liquidations then cause an even higher price movement that causes more liquidations. A long squeeze occurs the other way around, with prices declining to liquidate longs.
According to Maartunn, a crypto analyst, the negative funding rates in the Ethereum market result from the impending ETH 2.0 merge. He believes traders are hedging their spot exposure to Ethereum in other to be delta neutral.
Ethereum Merge Gets Official Date
The long-awaited transition of the Ethereum blockchain from a proof-of-work mechanism into a proof-of-stake one has gotten an official date. According to an announcement from the Ethereum Foundation, the first phase of the Merge, the Bellatrix upgrade, will occur on September 6. Meanwhile, the complete transition is expected to take place between September 10 and September 20.
Speculation over the Merge’s schedule had caused varying reactions within the crypto market. Updates from the Ethereum developer community hinted that the Merge could happen on September 19 or 15. This caused a run-up in Ethereum’s price as it surged to $2000 shortly after the hints came.
Furthermore, Ethereum’s open interests reached a new all-time high of $8 billion, surpassing that of Bitcoin for the first time. Also, gas prices on the Ethereum blockchain plummeted when it was revealed that the final public testnet, Goerli, ahead of the Merge was a success.
Ethereum’s one-month price chart. Source: CoinGecko
Consequently, it is no surprise that many investors hope Ethereum will see a surge in its price. In the chart above, Ethereum’s price dropped from the monthly high of $2000 below $1500 before rebounding to $1600, its current price. Analysts suggest that for a sustained upward trend, the $1750 and $2000 regions offer significant resistance, which will have to be cleared. From all indications, the negative funding rate may be the catalyst to cause Ethereum to break out.
Do you think Ethereum’s price would break out and clear the $2000 resistance point? Let us know your thoughts in the comments below.
Chris is a crypto enthusiast and a firm believer in the blockchain’s ability to create a new financial paradigm. Through writing, Chris hopes to expose the intricacies of this disruptive technology and how it is beneficial to Africans and developing countries. He aims to give readers a rational and unbiased outlook of the industry by equipping them with the necessary information to make enlightened investment decisions.
