ETH Flashes Negative Funding Rate But Is Sub $3K ETH Discounted?

Key takeaway:

ETH faces selling pressure as $480 million in liquidations and falling network fees impact investor confidence.

ETH’s negative funding rate may play a role in a potential rebound rally.

Ether (ETH) price faced a three-day 13.8% correction, retesting the $2,900 support on Wednesday for the first time in four weeks. The movement followed a sharp decline across the cryptocurrency market as traders turned risk-averse amid a worsening socio-economic environment.

ETH reclaimed the $3,000 level after US President Donald Trump called off import tariff hikes on various European Union countries. However, traders fear further downside after $480 million in bullish leveraged positions were liquidated in two days.

The funding rate on ETH perpetual futures briefly turned negative on Wednesday, meaning shorts (sellers) had to pay to keep their positions open. Under neutral circumstances, this indicator should range between 6% and 12%, with longs (buyers) paying for leverage. Still, a lack of confidence is not necessarily a sign of bearishness.

Traders fear that institutional interest in Ethereum has faded following recent outflows from Ether spot exchange-traded funds (ETFs). These investment instruments currently hold over $17 billion worth of ETH, representing a significant market overhang.

The US-listed Ether ETFs saw $230 million in net outflows on Friday, reversing the previous week’s trend of $96 million in average net inflows. More concerningly, companies that focused on accumulating ETH as a reserve strategy face heavy accounting losses, including Bitmine Immersion (BMNR US) and Sharplink (SBET US).

ETH traders pay more for downside price protection: Are bears in charge?

To confirm if professional traders have flipped bearish, one should assess the demand for ETH options. When whales and market makers fear further downside, the skew metric moves above 8% as put (sell) options trade at a premium relative to equivalent call (buy) instruments. In contrast, bullish markets are usually followed by a skew indicator below -8%.

According to the ETH options skew, traders are currently demanding an 11% premium to hold downside exposure, the highest level in seven weeks. Far from being an indication of bearish bets, the indicator reflects traders’ discomfort following multiple ETH price rejections at $3,400 over the past 10 weeks amid declining Ethereum network onchain metrics.

Ethereum network fees declined 20% from their baseline over the past week, according to Nansen. Meanwhile, competitor Solana experienced 36% higher fees, and BNB Chain gathered 27% higher fees. More importantly, Solana’s leadership in transaction volume remains undisputed, as the sum of the Ethereum base layer and scaling solutions stood below 570 million over seven days.

Related: ETH whales bought the dip, but will accumulators prevent a drop to $2.7K?Ether’s path to reclaim $3,400 depends heavily on economic visibility, which includes the returns on the artificial intelligence infrastructure and the resolution of economic and geopolitical conflict. 

Given the lack of demand for leveraged bullish ETH positions and increased competition in decentralized applications data processing, the odds of a sustainable Ether price rally in the near term remain slim.