Ethereum completed the long-awaited transition from proof-of-stake via ” The Merge” on September 15. Meanwhile, traders have been shorting Ether ( and ETH) to prepare for a sell-the news event.
The Ethereum funding rate has fallen
Ether’s futures funding rate across major derivatives platforms fell below zero, to their lowest levels since the Merge. BitMex saw the rate drop to -0.6%.
History of ETH funding rates. Source: Coinglass
The funding rates are a percentage fee paid to short and long position holders. The fee is determined by the difference in spot price and perpetual futures contract prices.
When the funding rate is positive, traders view the market as bullish. A negative funding rate indicates a market bearish sentiment. Let’s look at an example to understand why.
At the moment, Ether’s average funding rate is around 0.1%. That means that traders who have a $1,000,000 short position in ETH are willing to pay $1,000 each eight hours to those who hold long positions (based on how platforms recalculate funding rates).
This shows traders’ belief in spot Ether prices dropping after the Merge.
A consistently negative funding rate increases the likelihood of a short squeeze. Short squeeze is when an asset moves higher, and short traders decide or are forced to cover their position via margin calls. This increases the asset’s upside strength.
Technicals for ETH prices: 50% breakdown
Technically, Ether’s prices could drop by 50% due to the formation a symmetrical triangle on its longer timeframe chart.
Notably, trend continuation patterns such as symmetrical triangles can cause the price to move in the same direction as their prior trend after a consolidation period. The Ether symmetrical triangle pattern is bearish because it formed following the token’s 80% fall from November 2021 highs.
ETH/USD three-day price chart featuring ‘symmetrical triangle’ setup. Source: TradingView
A bearish symmetrical triangle’s downside goal is calculated by subtracting its maximum height from the breakdown. This puts ETH’s profit goal in 2022 at $850.
Capital rotation into Bitcoin
Negative funding rates and the symmetrical triangular structure pose risks for Ether. There are also downside risks associated with a renewed interest in Bitcoin ( Bitcoin), which is the largest cryptocurrency market capitalization.
ETH/BTC fell to 0.078 BTC Sept. 15, just one week after reaching a high of 0.085 BTC. After a strong bullcycle, in which its price increased by more than 75% within three months, the pair experienced a correction.
ETH/BTC daily price chart. Source: TradingView
stated that ETH’s performance before the merger indicates that some traders try to front-run a potential “sell–the-news” event. However, Arcane Research added:
It remains to be seen if the merger will be a “sellable-the-news” event.
Another weekly report by CoinShares shows a significant decline in capital for Bitcoin and Ethereum-based investment products.
Similar: Analyst: $17.6K Bitcoin price bottom: Bitcoin is ‘not yet’
However, Ether funds saw withdrawals of $61.6 million during the week ended Sept. 9, compared to Bitcoin’s $13million.
A recent increase in Ethereum’s balance across all cryptocurrency exchanges has prompted more sell-the-news cues. The Exchange inflow volume reached an all-time high of 22,723.289 Ethereum (7-day MA).
Ethereum balance on exchanges. Source: Glassnode
When they are looking to sell their holdings, traders tend to increase their cryptocurrency deposits on the exchanges. A rising ETH balance on exchanges can increase downside risks.
These views and opinions are the author’s and do not necessarily reflect those of Cointelegraph.com. You should do your research before making any investment or trading decision.
