Crypto traders frequently interpret negative funding rates as a potential buy signal, yet various indicators suggest that ETH investors might have valid reasons to exercise caution.

Market Analysis
Market Analysis

Key takeaways:

• ETH is encountering selling pressure due to $480 million in liquidations and declining network fees impacting investor sentiment.
• The negative funding rate for ETH could contribute to a potential rebound.

The price of Ether (ETH) saw a three-day decline of 13.8%, retesting the $2,900 support level on Wednesday for the first time in four weeks, reflecting a significant downturn across the crypto market as traders grew risk-averse due to deteriorating socio-economic conditions.

ETH managed to regain the $3,000 mark after U.S. President Donald Trump rescinded import tariff increases on several European Union nations. However, traders remain apprehensive about additional downturns following the liquidation of $480 million in bullish leveraged positions over two days.

The funding rate for ETH perpetual futures turned negative momentarily on Wednesday, meaning sellers had to pay to maintain their positions. Under normal circumstances, this indicator typically fluctuates between 6% and 12%, with buyers paying for leverage. Nonetheless, a lack of confidence does not inherently indicate bearishness.

Traders are concerned that institutional demand for Ethereum may have waned after recent withdrawals from Ether spot exchange-traded funds (ETFs), which currently hold more than $17 billion worth of ETH, posing a considerable burden on the market.

On Friday, U.S.-listed Ether ETFs reported $230 million in net outflows, reversing trends from the previous week which had averaged $96 million in inflows. The situation is further aggravated for companies focusing on accumulating ETH, such as Bitmine Immersion and Sharplink, which are facing extensive accounting losses.

To determine whether professional traders have adopted a bearish stance, it’s crucial to evaluate the demand for ETH options. When large investors and market makers anticipate further declines, the skew metric often rises above 8%, indicating that put (sell) options are valued higher than equivalent call (buy) options. Bullish markets tend to see the skew indicator fall below -8%.

Based on the ETH options skew, traders currently require an 11% premium to hold downside exposure, the highest level observed in seven weeks. This signal reflects trader unease following multiple price rejections at the $3,400 mark amidst diminishing Ethereum network metrics.

Ethereum network fees have dropped by 20% from their baseline in the past week, according to Nansen. In contrast, competitor Solana exhibited 36% higher fees, while BNB Chain recorded a 27% increase. Notably, Solana maintains its dominance in transaction volume, with the total of the Ethereum base layer and scaling solutions remaining below 570 million over seven days.

Ether’s journey to reclaim $3,400 is significantly dependent on economic factors, including returns from artificial intelligence infrastructure and the resolution of economic and geopolitical tensions.

Given the reduced demand for leveraged bullish ETH positions and intensified competition in decentralized applications data processing, the likelihood of a viable Ether price rally in the near term appears limited.