Recent data indicates that the Ethereum Funding Rate has plunged into negative territory, suggesting a prevailing bearish sentiment among traders. As detailed by analytics firm Santiment, the decline is noteworthy as it often precedes noteworthy market movements.
Bearish Sentiment Dominates Ethereum Derivatives Market
In a recent post on X, Santiment explained how short positions currently dominate the Ethereum derivatives market. The crucial metric in focus, the “Funding Rate,” gauges the periodic fees exchanged between traders across various derivatives platforms.
A positive funding rate indicates that long holders are paying a premium to those holding short positions, reflecting a bullish outlook in the market. Conversely, when the metric is below zero, it suggests that bearish sentiment rules as shorts outweigh the longs. This recent turn into the negative implies a significant shift in the derivatives traders’ mentality.
The chart presented by Santiment illustrates the Ethereum Funding Rate’s trend over the past couple of months:
This recent decline into the negative zone indicates that the market balance has shifted towards bearish positions. However, history shows that this turn may not necessarily signal a downturn for Ethereum’s price. In fact, the analytics reveal an intriguing pattern where a positive funding rate often leads to price corrections, whereas a negative rate tends to stimulate price rebounds.
This phenomenon can be attributed to the likelihood of those with dominant positions being caught in a liquidation squeeze. These events are often marked by intense volatility as liquidations cascade and further influence price dynamics.
While the current funding rate has dipped into red, it remains less negative than some previous lows that resulted in short squeezes. Therefore, market participants are left pondering whether a squeeze will occur this time around.
In related news, Ethereum experienced significant net exchange outflows totaling approximately $643 million over the past week, as disclosed by institutional DeFi solutions provider Sentora via a post on X.
In comparison, Bitcoin saw even more significant exchange withdrawals exceeding $2 billion. “This is a strong bullish signal despite market uncertainty, as investors are moving coins into self-custody for long-term holding,” remarked Sentora.
Current ETH Price
As of now, Ethereum is trading around $3,850, reflecting an increase of over 2% in the last 24 hours.
