ETH Funding Rates Hit Low Amid Shift From PoW

The Ethereum upgrade switched the network's Proof-of-Work (PoW) mechanism to Proof-of-Stake (PoS) mechanism. 

During the transition, the Ethereum mainnet and the Beacon Chain will ultimately merge into a single blockchain.

According to EtherNode estimates, the Ethereum transition will take place if there are no underlying technical challenges. Before deploying the Merge, the development team validated the checklist.

Recently, there have been numerous sentiments and reactions to the Merge. This has a significant impact on ETH and all of its derivatives in the cryptocurrency market. Some participants are increasing their holdings in anticipation of a rapid price increase. However, others are even disposing of what they have owing to fear of instability.

Sentiments On Merge Affects ETH Funding Rates

Currently, expectations and attention are focused on the Ethereum blockchain. However, depending on the status of the miners, the estimated period of changeover may vary. From the looks of things, ETH futures traders appear to be planning their movements.

The data from sources revealed that Ethereum funding rates have reached a new all-time low. This current low is the lowest for Ether derivatives.

The Ethereum funding rate is a metric that forces price convergence between the contract and the underlying asset. It indicates the payment made by long to short or short to long traders. The funding rate is determined by the difference between the spot and perpetual futures contract prices of an asset.

Negative Value For ETH Funding Rates And Implication

According to sources data, Ethereum funding rates are negative. This suggests that short traders are the dominant force in the order book. As a result, long traders will be rewarded accordingly.

Futures traders place a great value on funding rates. This is because these rates act as spontaneous triggers, causing traders' trading positions to shift favorably or adversely. As a consequence, they will either generate enormous profits or incur large losses.

Usually, traders that pay high funding while employing high leverage are more likely to lose money. However, such a reversal is conceivable even when the market is not in a negative trend. So, they may resort to hedging for protection.

The negative value of the ETH funding rates indicates that futures traders are now hedging their spot exposure. The Ethereum Merge is a significant explanation for such findings. Hence, traders may need to be more cautious because of the potential volatility that could erupt after the transition.

Read also: ETH Falls 9 Percent As Merge Optimism Fades