Ethereum traders are betting on a “sell the news” event on the day of The Merge as the ETH balance on exchanges skyrockets.
Ethereum successfully completed its long-awaited transition to proof-of-stake via “The Merge” on September 15, while traders have been heavily shorting Ether (ETH) in anticipation of a “sell the news” event. “.
Ethereum funding rate plummets
Ether futures funding rates on major derivatives platforms fell below zero to their worst levels to date; before The Merge. The rate fell to -0.6% on BitMex.
Funding fees are a percentage of the commission paid to traders who are short or long. The platform decides the rate based on the difference between the perpetual futures contract and the spot price of the asset.
Therefore, traders consider a market to be bullish when the funding rate is positive. Conversely, a negative funding rate indicates a bearish sentiment in the market. Let’s understand why with an example.
Currently, the average Ether funding rate is around -0.1%. In other words, traders short $1 million in ETH are willing to pay long traders $1,000 every eight hours (depending on when platforms recalculate funding rates).
This shows the conviction of traders in a possible drop in the price of spot Ether price after The Merge.
However, a consistently negative funding rate also increases the possibility of a short squeeze. A short squeeze, or short squeeze, occurs when an asset moves higher and short traders decide to cover their position or are forced to do so through margin calls, thus adding further upward force to the asset’s price. .
ETH price hints at a possible 50% drop
From a technical point of view, the price of Ether is at risk of falling 50% in the coming weeks due to the formation of a symmetrical triangle on its long-term chart.
In particular, symmetrical triangles are trend continuation patterns, that is, they tend to push the price to continue in the direction of its previous trend after a period of consolidation. Therefore, Ether’s symmetrical triangle pattern looks bearish, especially as it has formed after the token’s 80% drop from its November 2021 highs.
Theoretically, the downside target of a bearish symmetrical triangle is calculated by subtracting the maximum height of the triangle from the breakout point. This puts the 2022 ETH profit target at around $850.
Capital is moving to Bitcoin
In addition to negative funding rates and the symmetrical triangle setup, Ether also faces downside risks from renewed buying interest in Bitcoin (BTC), the top cryptocurrency by market cap.
On the daily chart, ETH/BTC fell to 0.078 BTC on September 15, almost a week after reaching a high of 0.085 BTC. The pair’s correction came after a strong bull cycle, in which its price rose more than 75% in less than three months.
“ETH’s underperformance ahead of The Merge indicates that some traders are trying to get ahead of a potential ‘sell the news’ event,” Arcane Research noted in its weekly report, but added:
“Whether or not The Merge will become a ‘sell the news’ event remains to be seen.”
In a separate weekly report, investment management firm CoinShares reported a substantial decline in equity for Bitcoin and Ethereum-based investment products.
However, Ether funds saw $61.6 million worth of withdrawals in the week ending September 9, compared to $13 million for Bitcoin.
More sell signals come from a recent increase in Ethereum balance across exchanges. Notably, exchange deposit volume hit a one-month high of 22,723,289 ETH (7-day MA).
Traders often increase their cryptocurrency deposits to exchanges when they want to sell their holdings. In other words, an increase in the balance of ETH on exchanges increases downside risks.
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