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Ethereum bulls navigate prices; short positions may get shattered

Ethereum's Price
Ethereum's Price

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The recent cryptocurrency prices have surprised investors with positive movements, despite the constant volatility. While this may be the case, a sense of fear and confusion has dominated the industry for a while now. But with an increasing number of good news and announcements in the space, things do seem to look good for the digital asset sector at the moment.

This is reflected in prices too, with frontrunner cryptocurrencies BTC and ETH spiking in price over the past few days. BTC was trading at around $18,700 on 7th September before moving up to the $22,000 level on 12th September. ETH too, saw substantial gains, during the same period, inciting an overall increase in price across several other altcoins.

While the market has been correcting since then, the sentiments at the moment appear to be bullish. A report by Kaiko, a digital assets data-provider company stated some interesting statistics to back this speculation of a likely price increase in the upcoming weeks.

ETH shorts may get crushed with a quick price pump

Although the price movement in BTC and ETH may be quite parallel, Kaiko pointed out that there has been a difference in their funding rates statuses.

But what is funding rate? A funding rate is a periodic payment made either to long or short traders based on the difference between perpetual contract markets and spot prices. Consequently, traders will either receive funding or pay for open positions. Keeping crypto funding rates low prevents the price of both markets from diverging for long periods.

While BTC’s funding rates have turned positive, the perpetual futures funding rate of ETH seems to stay low. Unlike BTC, it had dropped to its most negative levels since July 2021. While both tokens are generally in sync, this different course of action for ETH may have been fueled by Ethereum’s Merge Event.

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The funding rates being so low currently, is majorly because of a huge chunk of investors who have shorted the asset to hedge their risk. The speculation of ETH’s potential growth post-merge has created a frenzy among investors, who have been looking to stock up more of the asset at certain opportunities.

According to Kaiko, investors have been preferring the futures market for bigger profits as the merge may; according to them bring a quick and rewarding rally. The futures market for Ether now boasts of seven times more volume than traditionally preferred spot markets.

At the time of writing, Ethereum is trading at around $1,612 with a market cap of more than $197 billion. Its price has historically seen an uptrend whenever the funding rates have been low or negative during the past month. Thus, as soon as the execution of the merge is done, it is highly likely that the price will move up, crushing short positions opened by investors in the perpetual futures market.

With the funding expected to go to the positive side after the merge, traders using leverage may be at the risk of liquidation if not careful. The asset’s price will be directly impacted by how the derivatives market moves in the upcoming days.

Price Prediction for Ethereum

While it may be difficult to correctly speculate where ETH might move in the future, the major developments and bullish sentiments by its community will surely play a vital role. As the bear market starts waning, an inflow of institutional adopters and support from top organizations may also fuel Ethereum’s growth further.

With an all-time high of more than $4,600, ETH holds much potential as the second largest cryptocurrency by market cap. Furthermore, the transition from its PoW(Proof oF Work) mechanism to the better PoS(Proof of Stake) option for Ethereum’s functioning may increase opportunities for the project as it will invite several other participants in the future.

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