Ethereum's funding rates signal the feeling for major trades

[Ben Graham]

Ethereum (ETH) has declined noticeably over the past week, with price data from CoinMarketCap reporting a net 14% decline within this period. At the time of the most recent data, ETH is trading around $2,000, significantly lower than the past week’s level near $2,500.

ETH Funding Rates Signal A Bullish Turn

In a QuickTake post on the CryptoQuant platform, analyst Amr Taha draws attention to recent developments in ETH funding rates, a key sentiment indicator in perpetual futures. The funding rate shows the market sentiment, whether it’s optimistic/greedy (positive) or fearful/cautious (negative).

Typically, when funding is highly positive or negative, it means that too many traders are on one side, positions are overleveraged, and then the market becomes unstable. At that point, even a small price move in the opposite direction can trigger liquidations, causing sharp and fast price moves.

Although Ethereum’s funding rate was deeply negative over the week, analyst Amr Taha noted there has been a flip as ETH derivatives data shows a clear shift toward bullish positioning. Notably, Funding rates have turned strongly positive on BitMEX (Bitcoin Mercantile Exchange), reaching 0.049%, their highest level since October and well above the previous peak near 0.03. This signals aggressive leverage on the long side.

Extreme Optimism In ETH Could Spark Sharp Moves

At the same time, ETH funding on Binance has moved from deeply negative levels at -0.025% on February 5 back towards neutral, indicating that short positions are being replaced by new long exposure. In essence, the market has moved from fear to optimism.

While this shift reflects a rise in bullish sentiments, history shows that periods of extreme positive funding driven by leverage often increase the risk of liquidations and sharp corrective moves, rather than supporting sustained upside. In short, when everyone is bullish at the same time, the market becomes easier to knock over.

In all, Ethereum Derivatives traders have become aggressively bullish, and while that can push price higher in the short term, history shows it often increases the risk of sudden corrective moves rather than a sustained uptrend. At the time of writing, Ethereum trades at $2,089 after a 14.9% decline in the past seven days. Meanwhile, the daily trading volume is down by 32.39% and valued at $37.39 billion.