Bearish bets on Ethereum rise as short-sellers prey on dawdling prices

• ETH’s price consolidation has led to a surge in negative funding rates among futures traders.
• Likewise, bearish sentiments continue to grow across spot markets.

Ethereum [ETH] is under pressure from short-sellers as its funding rates across cryptocurrency exchanges have become predominantly negative due to price narrow movements in the past few weeks. 

Read Ethereum (ETH) Price Prediction 2023-24

A further price drop on the cards?

Funding rates refer to the periodic payments between traders to keep the price of a perpetual futures contract aligned with the price of the underlying asset. It is a useful metric for tracking market sentiment and can be used to identify potential trading opportunities.

When an asset’s funding rate is consistently positive, it indicates a lot of bullish interest in the market, and future market participants are willing to pay more to hold their long positions. 

Conversely, if the funding rate is negative, it indicates the presence of bearish sentiments with a surge in the number of short positions being opened. This could signal that the price of the underlying asset is likely to fall in the future.

In a new report, pseudonymous CryptoQuant analyst Greatest_Trader found that ETH’s movements in a tight price range, which came after a prolonged period of price declines, have led traders in the coin’s futures markets to adopt a “pessimistic outlook on ETH.”

“As the price of Ethereum has entered a consolidation phase following a period of sharp declines, the funding rates have also turned negative. This indicates that futures traders have adopted a pessimistic outlook on ETH, enhancing the possibility of a further price drop,” the analyst stated.

However, extended periods of negative funding rates are often followed by short liquidations, which can help the price of an asset rebound. The CryptoQuant analyst opined that the same might occur if ETH’s price drops below a certain price level and short sellers are forced to buy more of the altcoins to cover their losses.

“It is worth noting that consistent negative funding rates can potentially trigger a cascade of short liquidations, which in turn could lead to a sudden price rebound,” Greatest_Trader said.

Downtrend is strong in the spot market

At press time, ETH exchanged hands at $1,578, according to CoinMarketCap’s data. An assessment of the alt’s performance on a daily chart revealed that the narrow price movement has caused bearish sentiment to surge in the past few weeks.

How much are 1,10,100 ETHs worth today

For example, the coin’s Average Directional Index (yellow), which measures the strength of a trend, has climbed to 40.45. If the ADX line is above 25, it indicates that the current market trend is strong. On the other hand, if the ADX line falls under 25, it indicates that the trend is weak.

The Directional Movement Index (DMI) confirmed that the market has been in a downtrend for several weeks, with the positive directional index (green) resting below the negative directional index (red). With an ADX of 40.45 at press time, the downtrend was a strong one. 

Source: ETH/USDT on TradingView