Ethereum (ETH) recorded its highest funding rate since March after its price surged above $3,400 this morning. Although ETH prices have since dropped, positive sentiment about Altcoins remains high.
This optimism shows that traders believe in the possibility of setting a new record high. Historically, however, such increases in funding rates have often caused trouble.
Ethereum heats up as $200 million in coins moves into exchanges
Like other cryptocurrencies on the market, ETH price has increased by double digits recently. Today, the altcoin rose to $3,445 before falling to $3,256. Following this price increase, Ethereum’s funding rate increased to an eight-month high.
Funding ratio is an important indicator to measure market sentiment in cryptocurrency trading. When funding rates are high, it often suggests an optimistic market, with many traders betting on prices to rise by holding long-term positions. Conversely, low or negative funding rates can indicate a bearish outlook, as traders increasingly lean toward short positions.
While positive funding rates often reflect strong demand in a bull market, readings that are too high can signal an overheated environment. This imbalance presents a major risk for Ethereum traders holding long-term positions, potentially causing a chain reaction that leads to a further decline in ETH price.
One analyst emphasizing this cautious view is ShayanBTC, a contributor on CryptoQuant. According to ShayanBTC, Ethereum’s funding rate is a warning sign that the cryptocurrency could face a decline.
“In the current market environment, with funding rates at high levels, the risk of volatility increases and the possibility of a correction may increase. An overheated market could lead to panic selling, especially if the liquidation is triggered by profit-taking or a minor correction,” the analyst explained.
Adding to the signs of Ethereum’s further decline is the Net Exchange Position Change index, which tracks the 30-day change in ETH supply held in exchange wallets. An increase in this index often indicates that investors are transferring assets to exchanges, possibly preparing for a sale.
On the other hand, a decline in the index shows that holders are hesitant to sell. According to Glassnode, approximately 61,603 ETH, worth approximately $200 million, have moved into exchanges at the time of writing. If this number increases, the ETH price could face another drop.
ETH Price Prediction: A Short Decline Ahead
Since November 5, Ethereum price has increased by 40%. This price increase is a result of the breakout of the descending channel seen below. However, as the cryptocurrency attempted to touch $3,500 today, the bears pushed back and is currently trading at $3,256.
A closer look at the chart shows that the Balance of Power (BoP), which measures the strength of buyers and sellers, suggests that sellers are currently in charge. If this situation persists, ETH could drop to $3,009.
However, if the bulls prevent a drop below $3,221, this may not happen. Instead, ETH price could rise to $3,563 in the short term, possibly reaching $4,000 later.