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- Ethereum derivatives show growing short pressure despite steady price recovery
- Negative funding rates reveal traders betting against ongoing Ethereum uptrend
- Rising liquidations signal potential for repeated short squeeze driven rallies
Ether derivatives market is experiencing tension with traders gaining more bearish exposure although the price conditions are improving. According to market data, positioning and sentiment are separating, which forms a pattern that frequently leads to unstable price movements. Although prices have been stabilized over the last couple of weeks, the derivatives activity is an indicator that not all are convinced that the recovery will last.
As CryptoQuant analyst Darkfost says, traders are still uncertain about their actions, notably on Binance where derivatives trading has grown to a large degree. Open interest on the exchange has increased about 350,000 ETH since February. This rush has caused Binance to increase their market share up to approximately 37, which is a leverage of over a billion dollars at present prices.
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Even after Ethereum attained nearly 35% gains relative to their February lows, traders have kept adding short positions. This is an indication of the deep-rooted belief that the rally might not materialize. As a result, Binance has been experiencing funding rates largely in the negative since the end of January, indicating that short sellers dominate the positioning.
Persistent Negative Funding Rates Highlight Growing Short Pressure
Data on the funding rates confirms this trend because they have often decreased below -0.01% that is not a very common occurrence in the normal market conditions. Negative funding rates mean that short traders are paying the long traders implying that they are highly convinced that the market would be down. Nonetheless, these unanimities make the situation weak in case the market turns to the reverse direction.
Darkfost believes that this imbalance has already instigated liquidation events. In one hour Binance had to liquidate over $3 million worth of short positions twice. These forced closures create an upward price pressure with liquidations basically being market buy orders.
Funding Shift Signals Potential Momentum Alignment
Also, the fact that the open interest is on the increase and the funding rates are negative, indicates that the leveraged positions have built with time. This accumulation poses a threat of cascading liquidations in case the prices are on an upward trend. This makes the market structure more sensitive to the upward movements.
Recent statistics also indicate that the funding rates are starting to move back to the positive side indicating that they are at the moment moving at around 0.01%. This shift could suggest that the sentiment is beginning to shift some traders changing their stances. With such an ongoing trend, derivatives markets may start following the price action, and this will strengthen the upward trend.
In addition, these changes tend to put late short sellers in a stressful position, particularly when liquidity becomes constrained when prices are rapidly changing. In its turn, this can lead to an increased number of short squeeze events in the nearest future.
The current derivatives market of Ethereum is an indication of detachment between the expectations of the traders and the price direction. With rates on funding still recovering, the current accumulation of short positions may create new volatility by causing multiple liquidation processes.
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