Ethereum Funding Rates Drop To 14-Month Low, Short Squeeze In The Making?

On-chain data shows the Ethereum funding rates have now declined to the lowest value in 14 months, something that could pave way for a short squeeze in the market.

Ethereum Funding Rates Reach Highly Negative Value

As pointed out by an analyst in a CryptoQuant post, the ETH funding rates are currently at their least value 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.

When the value of the metric is negative, it means short traders are paying a premium to the long traders in order to hold onto their positions. This trend generally hints that a bearish sentiment is more dominant in the market currently.

On the other hand, positive values of the indicator imply longs are overwhelming the shorts at the moment. Naturally, such a trend suggests the majority sentiment is bullish.

Now, here is a chart that shows the trend in the Ethereum funding rates over the past fifteen months or so:

Looks like the value of the metric has been a deep red in recent days | Source: CryptoQuant

As you can see in the above graph, the Ethereum funding rates have declined recently, and have now hit highly negative values.

The indicator’s current values are the lowest they have been since the July of last year, around fourteen months ago.

Back then, these values lead to a big short squeeze taking place in the market that pumped the price of the crypto up.

In a short squeeze, a swing up in the value of Ethereum while the market is overleveraged liquidates a large amount of shorts. These liquidations push the price up even higher, leading to more shorts being flushed down. In this way, liquidations cascade together during a squeeze.

Related Reading: Ethereum Price Plummets 9% As Fed Chair Passes Hawkish Remarks

Generally, highly positive funding rates can lead to long squeezes (since there are more longs in the market), while negative ones may result in shorts getting squeezed.

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.

ETH Price

At the time of writing, Ethereum’s price floats around $1.4k, down 7% in the last seven days. Over the past month, the crypto has lost 10% in value.

The below chart shows the trend in the price of the coin over the last five days.

The value of the crypto seems to have plummeted down over the last couple of days| Source: ETHUSD on TradingView
Featured image from DrawKit Illustrations on Unsplash.com, charts from TradingView.com, CryptoQuant.com