The much anticipated Ethereum Merge has been completed, and as a result, investors may witness significant price volatility this week. And that’s on top of already-existing economic concerns that have stifled the price of Ethereum, which has been circling about $1,600 ever since it fell below that mark on Tuesday with the release of August inflation statistics. As the effects of the merger began to emerge on Thursday morning, the price of Ethereum dropped below $1,500.
Before the Merge, Ether’s futures financing rates on the top derivatives platforms fell below zero, reaching their lowest levels to date. On BitMex, the rate fell as low as -0.6%. Funding rates are a portion of the commission paid to owners of short or long positions. Based on the difference between the perpetual futures contract and the spot price, the platform determines the charge.
Therefore, when the financing rate is positive, traders view the market as bullish. A negative funding rate, on the other hand, suggests that market sentiment is gloomy. Let’s use an illustration to understand why.
The average financing rate for Ether is now about -0.1%. In other words, traders having a $1 million short ETH position are prepared to give $1,000 every eight hours to those holding bullish holdings (based on when platforms recalculate the funding rates).
Is ETH Price On Verge For 50% Crash!
A consistently low funding rate, however, also makes a short squeeze more likely. A short squeeze happens when the price of an asset rises and short traders opt to close out their positions or are pressured to do so by margin calls, giving the asset’s price additional room to rise.
A symmetrical triangle is developing on Ether’s longer-time frame chart, which raises the possibility of a 50% price decline in the upcoming weeks. Notably, symmetrical triangles are trend continuation patterns, which usually cause the price to resume its former trend after a period of consolidation. Since Ether’s symmetrical triangle pattern was formed following the token’s 80% drop from its November 2021 highs, it, therefore, seems bearish.
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