Ethereum Funding Rate Hits 2024 Low: What Does It Mean for ETH?

Ethereum’s derivative market is showing signs of bearish sentiment as the Funding Rate hits a yearly low. The Funding Rate is a critical metric in the Futures market that measures the cost of holding long or short positions. A negative Funding Rate indicates a bearish sentiment, with short sellers paying long holders to maintain their positions open.

ETH’s Funding Rate dropping to its lowest level this year suggests a decrease in demand for buying Ethereum on leverage through derivatives. This decline in the Funding Rate reflects a lack of enthusiasm from traders in the derivatives market, potentially adding downward pressure on Ethereum’s price.

The decrease in the Funding Rate could pave the way for a potential short squeeze scenario. With fewer traders willing to take long positions, the downward trend in Ethereum could persist unless spot buyers intervene to counterbalance the sell pressure. This short liquidation cascade could occur if spot buyers enter the market in sufficient numbers, forcing short sellers to close their positions and leading to a price increase.

Analyzing Ethereum’s spot volume on Santiment reveals that the current average volume has remained stable at around $14 billion in recent weeks. This consistent volume is crucial for maintaining price stability, especially as Ethereum’s Funding Rate has reached its lowest point of the year. A drop in spot volume below this range could increase downward pressure on Ethereum’s price.

Despite the bearish sentiment from derivatives traders, the stable spot volume has likely prevented a more severe price decline for Ethereum. However, a further drop in spot volume could exacerbate the negative sentiment in the derivatives market, potentially leading to price declines.

In conclusion, Ethereum’s Funding Rate hitting record lows indicates a dominance of short positions in the derivatives market. If spot volume continues to decrease, there may not be enough demand to absorb the sell pressure, resulting in further price declines for Ethereum.