Ethereum futures market cool-off sets the stage for ETH rebound: Quant

One analyst explained that the recent hiatus in the Ethereum futures market could suggest that ETH’s price rise may resume.

Ethereum funding rate has recently decreased

One analyst in a CryptoQuant Quicktake post explained that ETH funding rates have cooled from previously overheated levels. “Funding Rate” means the periodic fee currently exchanged by holders of futures contracts on a derivatives platform.

A positive value for this indicator means that long-term contract holders are paying a premium to sell short to maintain their positions. This trend means that most traders currently share the bullish sentiment.

On the other hand, anything below 0 indicates that bearish sentiment is currently dominant in the futures market as short traders outperform long traders.

Now here is a chart showing the Ethereum funding rate trend over the past few months:

The value of the metric seems to have been low in recent days | Source: CryptoQuant

As shown in the graph above, Ethereum funding rates have been mostly positive over the past few months, meaning market futures traders have been mostly bullish on the asset.

The few times the indicator went negative during this period did not turn out to be significant, as the indicator only achieved low red values ​​and bounced back inside the green zone without too much waiting.

The chart shows that the metric achieved particularly high values ​​at some stages during periods of bullish sentiment. “However, it is important to note that the elevated valuation of the funding rate raises concerns about a potential overheated state in the perpetual market and hints at the possibility of an imminent long-term squeeze event,” the quant points out.

A “squeeze” is an event where a sudden change in price causes a large amount of liquidation, which then causes the price to continue to fluctuate, resulting in additional liquidation.

When this series of liquidations affects the buy side of the market (i.e. the price movement in question is a sharp decline), the event is called a “long squeeze.”

Typically, the side in the futures market that is most controlled by traders is likely to come under pressure. Therefore, long-term pressure may be more likely to occur when the funding ratio is very positive.

However, with Ethereum recently undergoing its latest revision, the funding rates have also changed. While still positive, its magnitude may no longer be relevant in overheated markets and therefore the risk of a long squeeze may have been reduced.

“Therefore, prices are likely to resume their upward trajectory after the ongoing correction phase is completed,” explains the analyst.

ETH price

The price of Ethereum has fallen about 5% over the past week, currently falling below $2,400.

Looks like the price of the coin has been sliding off recently | Source: ETHUSD on TradingView

Featured image by Kanchanara on Unsplash.com, chart by TradingView.com, CryptoQuant.com

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