According to on-chain data, the Ethereum funding rate has fallen to its lowest level in over 14 months. This could lead towards a temporary squeeze in the market.
Ethereum Funding Rates at Very Negative Value
A CryptoQuant analyst has pointed out that the ETH funding rates have been at their lowest level since July 2021.
The “funding rate” is an indicator that measures the periodic fee that traders in the Ethereum futures market are exchanging between each other right now.
The metric’s negative value means that traders who are short of long positions pay more than those who trade longer. The trend suggests that bearish sentiments are more prevalent in current markets.
Conversely, positive indicators indicate that longs are outnumbering shorts. Such a trend indicates that the majority of sentiments are bullish.
Below is a chart showing how Ethereum funding rates have changed over the last 15 months.
Source: CryptoQuant| Source: CryptoQuant
You can see that the Ethereum funding rates declined in recent months and are now at very low levels.
The indicator’s current values are the lowest they have been since the July of last year, around fourteen months ago.
These value led to an enormous short squeeze on the market which drove the price of crypto higher.
Short squeezes are when the Ethereum market overleverages causes a rise in its value, which results in a lot of shorts. The price of Ethereum rises, causing more shorts to be flushed. This is how liquidations can cascade during a squeeze.
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In general, high funding rates lead to long squeezes because there are more longs than shorts.
If the same trend as 14 months ago repeats this time as well, then it’s possible Ethereum could reverse using a short squeeze this time as well.
At the time of writing, Ethereum’s price floats around $1.4k, down 7% in the last seven days. The crypto’s value has dropped 10% over the last month.
The chart below shows how the currency’s price has changed over the course of five days.
Over the past couple of days, the value of crypto appears to have dropped. Source: ETHUSD on tradingView| Source: ETHUSD on TradingView
Featured image by DrawKit Illustrations at Unsplash.com. Charts from TradingView.com and CryptoQuant.com.