- Bitcoin and Ethereum crypto funding rates have fallen significantly in recent days.
- Implied volatility for Bitcoin and Ethereum increased significantly during this period.
Bitcoin [BTC] and Ethereum [ETH] holders have been seriously affected by the recent market downturn. However, it wasn’t just holders who were affected.
Low on financing rates
Funding rates for both BTC and ETH have dropped significantly in recent days. Negative crypto funding rates can lead some investors to believe that a price drop is imminent, prompting them to sell their holdings or take short positions themselves.
This selling pressure could contribute to an actual price drop for BTC and ETH.
With negative financing rates, holding long-term contracts becomes less attractive. The fees eat into potential profits, causing some traders to unwind long positions or be more cautious when opening new ones.
This reduces overall buying pressure, which could weaken price support for BTC and ETH.
The shift in sentiment could lead to higher volatility in the short term. As long and short positions compete, price swings for BTC and ETH may become more apparent.
Conversely, a significant and sustained decline in financing rates could be seen as a contrarian indicator by some investors.
They could see it as a sign of excessive bearishness, providing a potential buying opportunity for BTC and ETH at what they view as a discounted price.
Source: Coinglass
At the time of writing, traders were somewhat bullish on Bitcoin as long positions had finally surpassed short positions, accounting for 50.7% of all trades.
Ethereum witnessed a similar rise in bullish sentiment as the percentage of long positions on ETH grew by 50.9%.
Source: Coinglass
IV grows as prices fluctuate
Implied volatility for both BTC and ETH also grew during this period. An increase in the IV indicates that options traders are pricing in a higher probability of significant price movements for BTC and ETH in the future.
Read Bitcoin’s [BTC] Price forecast 2024-25
This points to increasing uncertainty about the future direction of the markets. If market sentiment moves strongly towards bearish, the negative financing could amplify any price decline due to increased short selling.
In contrast, a sudden positive shift could lead to a more significant price increase due to higher volatility.
Source: IntoTheBlock