CONSEQUENCES OF A LOW ETH FUNDING RATE
The funding rate is a metric that reveals the regular commission that buyers and sellers are now exchanging on the Ethereum futures market. It is determined by the price difference between the spot price of an item and a perpetual futures contract.
A negative value typically means that short sellers are paying long sellers to hold their positions. Generally speaking, this tendency indicates market bearishness. Conversely, when rates are rising, long traders outnumber short traders, indicating a bullish general market trend.
When the Ethereum financing rate last reached its present level, in July 2021, prices shot up and there was a short squeeze. Due to the incredibly low funding rates currently seen in the cryptocurrency sector, a similar event may be on the horizon.
An increase in the price of ETH in a market with excessive leverage results in the liquidation of many short positions, and this is known as a "Ethereum short squeeze." When prices rise as a result of the liquidations, there are then further liquidations. In the opposite situation, a long squeeze happens when prices drop to liquidate long positions.
Crypto analyst Maartunn claims that the upcoming ETH 2.0 merger is the cause of the negative funding rates in the Ethereum market. He thinks that in order to stay delta neutral, traders are hedging their spot exposure to Ethereum.
Date Set for the Official Ethereum Merge
An official date has been set for the Ethereum blockchain's long-awaited switch from a proof-of-work to a proof-of-stake mechanism. The Bellatrix update, the first stage of the Merge, will take place on September 6, the Ethereum Foundation announced. The full transition is anticipated to occur between September 10 and September 20.
Different responses had been seen in the crypto market as a result of rumors regarding the Merge's timing. The Ethereum developer community provided updates that suggested the Merge would take place on September 19 or 15. Shortly after the hints appeared, Ethereum's price increased and climbed to $2000 as a result.
Additionally, Ethereum's open interest surpassed Bitcoin for the first time, reaching an all-time high of $8 billion. When it was disclosed that the final public testnet, Goerli, prior to the Merge was successful, gas prices on the Ethereum blockchain also crashed.
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A lot of people anticipated bull run with the ETH merge, but unfortunately it wasn't what we actually expected.