Ethereum Futures Market Cool Off Sets Stage For ETH To Rally: Quant
January 22 2024 - 8:00PM
NEWSBTC
An analyst has explained that the latest cooldown in the Ethereum
futures market could suggest there is potential for a price rise to
resume for ETH. Ethereum Funding Rates Have Seen A Decline Recently
An analyst in a CryptoQuant Quicktake post explained that the ETH
funding rates have seen a cooldown from their previously overheated
levels. The “funding rate” refers to the periodic fees that futures
contract holders on derivative platforms currently exchange with
each other. When the value of this metric is positive, it means
that the long contract holders are paying a premium to the shorts
to hold onto their positions. Such a trend implies that most
traders share a bullish sentiment right now. Related Reading:
Bitcoin Puell Multiple At Crucial Juncture: Will Retest Save Rally?
On the other hand, the under zero indicates that a bearish
sentiment is currently dominant in the futures market, as the short
traders are overwhelming the longs. Now, here is a chart that shows
the trend in the Ethereum funding rates over the last few months:
The value of the metric seems to have been low in recent days |
Source: CryptoQuant As displayed in the above graph, the Ethereum
funding rates have been mostly positive during the last few months,
implying that traders on the futures side of the market have mostly
been bullish about the asset. The few times that the metric did dip
into the negative inside this period didn’t turn out to be anything
major, as the indicator only attained low red values and rebounded
back inside the green territory without too much wait. The chart
shows that during some phases of this lasting period of bullish
sentiment, the metric attained particularly high values. “However,
it’s crucial to note that elevated values in funding rates raise
concerns about a potential overheated state in the perpetual
markets, signaling the possibility of an impending long-squeeze
event,” notes the quant. A “squeeze” is an event in which a sharp
swing in the price triggers a large number of liquidations, which
in turn feed into this price move, elongating it and causing
further liquidations. When such a cascade of liquidations affects
the long side of the market (that is, the price move in question is
a rapid drawdown), the event is known as a “long squeeze.”
Generally, the side of the futures market most heavily dominated by
traders is likelier to fall prey to a squeeze. Thus, when the
funding rates are highly positive, a long squeeze can be more
probable. Related Reading: Cardano To $7? Analyst Predicts When ADA
Will Resume Uptrend Recently, though, as Ethereum has gone through
its latest correction, so have the funding rates. Although they are
still positive, their magnitude may no longer be associated with an
overheated market, and the risk of a long squeeze would have thus
fallen. “Consequently, there exists the potential for the price to
resume its upward trajectory following the completion of the
ongoing correction stage,” explains the analyst. ETH Price Ethereum
has declined by around 5% during the past week as its price has now
fallen under $2,400. Looks like the price of the coin has been
sliding off recently | Source: ETHUSD on TradingView Featured image
from Kanchanara on Unsplash.com, charts from TradingView.com,
CryptoQuant.com
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