On February 28, the price of Ethereum (ETH) surged past $3,488, marking its highest point in over two years. This significant increase in price within a single day highlighted a strong bullish momentum in the Ethereum market.
However, this upward movement led to a rise in ETH funding rates to historic highs, signaling potential risks of extreme market volatility. In case the bears take control and trigger a pullback, where will Ethereum’s price find reliable support?
Ethereum Derivative Markets Signal Potential Pullback Amid Market Rally
On February 28, both Bitcoin and Ethereum prices surged to historic peaks, with BTC reaching $64,000 and ETH hovering just $12 shy of breaking the $3,500 resistance. However, Ethereum’s derivative markets are flashing warning signs, indicating a possible pullback in the pioneer smart-contract network.
The CryptoQuant Funding Rates metric, which tracks fees paid by active traders of perpetual futures contracts for specific cryptocurrencies, spiked notably on February 28. Within the daily timeframe, ETH funding rates reached as high as 0.07%, marking the highest level since April 2021.
This surge is approximately 40% higher than the peak funding rate recorded in the lead-up to ETH’s previous all-time high of $4,800 in November 2021. Such a significant increase in funding rates typically indicates overwhelming positivity among traders, potentially signaling overheated markets with highly leveraged bullish bets.
Ethereum (ETH) Funding Rate vs. Price | Source: CryptoQuant
However, this market dynamic can be precarious, as it exposes bullish traders to substantial losses if prices reverse direction. In such scenarios, a long squeeze may occur, where aggressive selling pressure from short-term traders forces long position holders to liquidate their positions.
This downward price movement can trigger panic selling and margin calls on existing leveraged long contracts, exacerbating the decline and resulting in significant losses for bullish investors.
Ethereum (ETH) Price Outlook Amid Funding Rates Spike
The recent spike in funding rates on February 28 suggests that Ethereum’s price may face a potential pullback in the near future. Despite this, strong capital inflows and positive investor sentiment ahead of the Ethereum ETFs verdict scheduled for May 2024 could provide significant buying pressure, likely maintaining support above $3,000.
IntoTheBlock’s global in/out of money data further supports this outlook, indicating that approximately 96% of current ETH holders are in profit positions with Ethereum trading at $3,340. This suggests that many holders may refrain from selling, which could help mitigate the risk of a rapid downturn.
Ethereum (ETH) price forecast, February 2024 | Source: IntoTheBlock
Moreover, the data highlights that 9.7 million addresses acquired 10.3 million ETH at the maximum price range of $3,176, potentially forming a robust support level.
However, if Ethereum’s price surpasses $3,500, as anticipated by traders with extreme leverage positions, it could rally toward $4,000 in March 2024. Nevertheless, achieving this may prove challenging due to the significant sell-wall expected at the $3,500 psychological resistance level.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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