Ethereum Funding Rates Hit The Low Amid The Shift From PoW

The Ethereum upgrade has shifted the network from Proof-of-Work (PoW) to Proof-of-Stake (PoS). The Ethereum mainnet and the Beacon Chain will finally merge as a single blockchain through the transition.

According to the estimations of EtherNodes, the Ethereum transition will occur if there are no underlying technical challenges. Before now, the team of developers confirmed the checklist for the Merge before releasing it.

There have been several sentiments and reactions concerning the Merge lately. This significantly impacted ETH and all its derivatives in the crypto market. Some participants are accumulating more expecting a sudden spike in price. But some are even disposing of what they have due to fear of volatility.

Sentiments On Merge Affects ETH Funding Rates

Currently, expectations and more attention are glued to the Ethereum blockchain. But based on the state of the miners, there could be variation in the transition estimated time. From the look of things, the ETH futures traders seem to be calculating their moves.

The data from CryptoQuant revealed that Ethereum funding rates had hit a new all-time low. This recent point marks the lowest for the Ether derivatives.

ETH funding rate is a metric that provides forced convergence of prices between the contract and the underlying asset. It indicates the payment that comes from long to short or short to long traders. The difference between an asset’s spot and the perpetual futures contract prices provides the funding rate.

Negative Value For Ethereum Funding Rates And Implication

CryptoQuant data give a negative value for the Ethereum funding rates. This means that the dominant force in the order book goes to short traders. Hence, will be paying long traders accordingly.

Futures traders place high importance on funding rates. This is because these rates are like spontaneous catalysts that could alter their trading stance positively or negatively. As a result, they will make huge profits or suffer massive losses.

Usually, traders that pay high funding while using high leverage will likely have losses. However, such a flip is possible to occur even when the market is not under a severe bearish influence. So, they may resort to hedging as protection.

The negative value of the ETH funding rates implies that futures traders are currently hedging their spot exposure. A considerable explanation for such results points to the Merge. Hence, the traders could exercise more caution due to potential volatility that could erupt after the transition.

Featured image from CNN, chart from TradingView.com