Ethereum funding rates hit low amid shift away from PoW

Ethereum’s upgrade has moved the network from Proof of Work (PoW) to Proof of Stake (PoS). The Ethereum mainnet and Beacon Chain will eventually merge as a single blockchain during the transition.

According to EtherNodes estimates, the transition to Ethereum will happen if there are no underlying technical challenges. Until now, the developer team confirmed the checklist for Merge before releasing it.

Lately there has been a lot of emotion and reaction regarding the Merger. This significantly affected ETH and all its derivatives in the crypto market. Some participants accumulate more in anticipation of a sudden rise in price. But some reject what they have for fear of instability.

Sentiments about the merger affect ETH funding rates

Currently, expectations and most attention are stuck on the Ethereum blockchain. But based on the status of the miners, there could be variation in the estimated transition time. From the looks of things, ETH futures traders seem to be calculating their moves.

Data from CryptoQuant revealed that Ethereum funding rates had hit a new all-time low. This recent point marks the lowest for Ether derivatives.

The ETH funding rate is a metric that provides forced price convergence between the contract and the underlying asset. It indicates the payoff coming from long to short or short to long investors. The difference between an asset’s spot and perpetual futures provides the funding rate.

Negative value for Ethereum funding rates and implications

CryptoQuant data gives a negative value for Ethereum funding rates. This means that the dominant power in the order book goes to short traders. Therefore, it will pay long-term investors accordingly.

Futures investors pay a lot of attention to funding rates. This is because these interest rates are like spontaneous catalysts that could positively or negatively change their trading stance. As a result, they will make huge profits or suffer huge losses.

Typically, traders who pay high funding while using high leverage will likely experience losses. However, such a reversal is likely to occur even when the market is not under severe bearish influence. Thus, they may resort to hedging as protection.

    Ethereum funding rates hit low amid shift away from PoW
Ethereum expected to rise l Source: ETHUSDT on TradingView.com

The negative value of ETH funding rates suggests that futures traders are currently hedging their spot exposure. An important explanation for such results points to Merger. Therefore, traders could be more cautious due to the potential volatility that could erupt after the transition.

Featured image from CNN, chart from TradingView.com

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