Crypto: Eth Funding Rate Turns Negative, But Will Ether Bulls Take The Bait?

Crypto traders often view negative funding rates as a strong buy signal, but several data points suggest ETH investors have good reasons to remain risk-averse.

ETH faces selling pressure as $480 million in liquidations and falling network fees impact investor confidence.

ETH’s negative funding rate may play a role in a potential rebound rally.

Ether (ETH) price faced a three-day 13.8% correction, retesting the $2,900 support on Wednesday for the first time in four weeks. The movement followed a sharp decline across the cryptocurrency market as traders turned risk-averse amid a worsening socio-economic environment.

ETH reclaimed the $3,000 level after US President Donald Trump called off import tariff hikes on various European Union countries. However, traders fear further downside after $480 million in bullish leveraged positions were liquidated in two days.

The funding rate on ETH perpetual futures briefly turned negative on Wednesday, meaning shorts (sellers) had to pay to keep their positions open. Under neutral circumstances, this indicator should range between 6% and 12%, with longs (buyers) paying for leverage. Still, a lack of confidence is not necessarily a sign of bearishness.

Traders fear that institutional interest in Ethereum has faded following recent outflows from Ether spot exchange-traded funds (ETFs). These investment instruments currently hold over $17 billion worth of ETH, representing a significant market overhang.

The US-listed Ether ETFs saw $230 million in net outflows on Friday, reversing the previous week's trend of $96 million in average net inflows. More concerningly, companies that focused on accumulating ETH as a reserve strategy face heavy accounting losses, including Bitmine Immersion (BMNR US) and Sharplink (SBET US).

To confirm if professional traders have flipped bearish, one should assess the demand for ETH options. When whales and market makers fear further downside, the skew metric moves above 8% as put (sell) options trade at a premium relative to equivalent call (buy) instruments. In contrast, bullish markets are usually followed by a skew indicator below -8%.

According to the ETH options skew, traders are currently demanding an 11% premium to hold downside exposure, the highest level in seven weeks. Far from being an indication of bearish bets, the indicator reflects traders’ discomfort following multiple ETH price rejections at $3,400 over the past 10 weeks amid declining Ethereum network onchain metrics.

Source: CoinTelegraph