Negative market sentiment for Ethereum [ETH] and Bitcoin [BTC] caused derivative funding rates to remain negative. While both prices suffered a major setback, short traders followed the selling ritual.
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Now, could this provide an opportunity for the patient (long) traders following a “potential” squeeze?
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Deep wounds
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The funding rates for BTC and ETH have remained negative for derivative traders for quite a while. Furthermore, derivative prices have kept funding rates generally below zero since May. Ergo, depicting the overall sentiment of the traders and how they viewed future market conditions.
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But could this narrate a potential short-term bull signal for traders? Well, yes.
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The annualized funding rate spread between BTC and ETH perpetual pushed to a new all-time high (ATH) of 77% as per data from Glassnode. The graph below showcased the same.
Source: Glassnode
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Although, short trades seem to be focused on ETH rather than BTC given its Merge season. In this regard, Glassnode added,
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“This indicates traders are heavily short ETH relative to BTC, likely speculating/hedging for the upcoming Merge.”
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This means hedging their risk exposure to ETH by going short perpetual futures. In fact, ETH funding rates dipped to their most negative since July 2021.
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The difference in sentiment for crypto’s two flagship assets seemed to pivot in anticipation of the upcoming Merge. The event formerly known as Ethereum 2.0, when the proof-of-work (PoW) Ethereum mainnet will merge with the proof-of-stake (PoS) Beacon chain.
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Additionally, a report by Kaiko found that Ether perpetual futures traded at more than 7x the volumes of spot markets. This stands at a four-times increase from November 2021.
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Opportunity arises
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However, given the past scenarios, a ‘short-squeeze‘ could see a potential uptick for the flagship token. Every time the funding dropped to the negative side during the past month, prices increased.
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Thus, funding rates moved towards the positive territory. Ergo, long traders took advantage of the leftover space from the short ones.
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Nonetheless, social sentiment continues to form a blanket around Ethereum. As per LunarCrush, Ethereum’s social activity accelerated over the last three months. It even continued to reach new heights.
Source: LunarCrush
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Negative to positive
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On the other hand, the largest cryptocurrency BTC’s funding rates flipped positive although the (positive) rate might not be significant enough.
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Nevertheless, long traders paid a premium to the short traders, at press time, in order to hold onto their positions.
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The only question remains- Could Bitcoin possibly have further room to grow? Well, funding rates have been quite positive recently. Especially, when the price kept suffering- BTC lost more than 10% in just 24 hours after the CPI announcement.
Source: CoinMarketCap
