Ethereum’s Recent Rally: Is It Sustainable?

Ethereum has surged ahead of Bitcoin in recent weeks, reaching a peak of $3,130, its highest level since April 2022. While Bitcoin has been consolidating, Ethereum has been on a bullish run, jumping over 7% in the past week.

Positive Funding Rates Indicate Bullish Sentiment

The ETH funding rate, which tracks fees exchanged between traders in the futures market, has been positive recently. This indicates that long holders are paying a premium to short investors to hold onto their positions, suggesting a bullish sentiment in the futures market.

Extreme Funding Rates in January Signaled Market Top

In January, the 30-day simple moving average (SMA) of the Ethereum funding rate reached extremely high levels, coinciding with the market top caused by Bitcoin spot ETFs. After the subsequent price drawdown, the funding rate calmed down as long positions were liquidated.

Current Funding Rates Not as Extreme, Rally May Continue

The recent rally in Ethereum has seen the funding rate rise again, but it’s not yet at the extreme levels seen in January. This suggests that the futures market is not yet overheated, and the current rally may continue for a while.

Long Squeeze Risk Increases as Funding Rates Rise

However, as funding rates increase, the risk of a long squeeze, where long holders are forced to sell their positions, also increases. While Ethereum is not at the same risk level as it was in January, a long squeeze could still occur as speculators continue to open more positions.