Definition
The average funding rate, expressed as a percentage, is set by exchanges for perpetual futures contracts. When the funding rate is positive, long positions make periodic payments to short positions. Conversely, when the rate is negative, short positions make periodic payments to long positions.
Recent Trends in Ethereum’s Funding Rate
Ethereum’s perpetual futures funding rate has recently fallen from its previous bullish premium. This downward trend is noticeable in both short-term and long-term perspectives, indicating a growing bearish sentiment among traders.
Historically, when funding rates turn negative, it signifies that short positions are paying long positions, suggesting a higher number of bearish bets. Although Ethereum’s price has been volatile since early 2024, funding rates have frequently been positive, reflecting bullish expectations. The recent drop in both funding rates and prices below the $2,700 mark points to a shift in market sentiment.
Historical Funding Rate Trends
In recent years, Ethereum’s perpetual futures funding rate has shown significant fluctuations, closely following broader market trends. During periods of market optimism, such as the 2021 bull run, funding rates rose into positive territory, indicating a strong presence of long positions as traders anticipated continued price increases.
Conversely, during market downturns, such as in mid-2022 and at various points in 2023, funding rates became negative, reflecting a shift towards bearish sentiment. These fluctuations demonstrate how funding rates have historically served as an indicator of trader sentiment and often precede major price movements in Ethereum.
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