Ethereum Leaves Bitcoin Behind, But Is This Rally Sustainable?

Ethereum has left Bitcoin in the dust with its latest rally towards $3,100. Here’s whether this run is sustainable based on futures market data.

While Bitcoin has been in consolidation lately, Ethereum appears to have been putting together bullish momentum entirely of its own, as the asset has jumped more than 7% in the past week.

The chart below shows how ETH has performed during the last month.

In the last 24 hours, Ethereum reached a peak of $3,130 level, a mark it only reached for the first time since the first half of April 2022. Since then, the coin has come down a bit, as it now floats around $3,100.

Nonetheless, despite this small retrace, ETH has still performed notably better than the original cryptocurrency. Now, the asset’s investors might be wondering if the coin could continue this run. Perhaps data related to the futures market might shed some light.

As pointed out by an analyst in a CryptoQuant Quicktake post, the ETH funding rate has had positive values recently. The “funding rate” is an indicator that keeps track of the periodic fees that traders on the futures market are exchanging between each other right now.

When the value of this metric is positive, it means that the long holders are currently paying a premium to the short investors to hold onto their holdings. Such a trend implies the majority sentiment in the futures market is bullish.

On the other hand, the indicator being negative implies a bearish sentiment is dominant in the sector right now as the short holders outweigh the long traders.

Now, here is a chart that shows the trend in the 30-day simple moving average (SMA) of the Ethereum funding rate over the past couple of years:

As the above graph shows, the 30-day SMA Ethereum funding rate had shot up to extremely high levels in the first half of January. Interestingly, this is when the market top due to the Bitcoin spot ETFs occurred.

After the price drawdown following the event, the funding rate calmed as the longs that had piled up saw liquidation. As the recent rally in the coin has occurred, the funding rate has once again gone up.

However, This time, the 30-day SMA Ethereum funding rate isn’t quite at the extreme levels it was last month. This could mean that the futures market isn’t yet too overheated.

Naturally, this could potentially allow for the current Ethereum rally to go on for a while still. It should be noted, though, that as the funding rates go higher, the chances of a long squeeze taking place go up.

Thus, while ETH may not be quite at the same risk as last month, a long squeeze could still be on the horizon, becoming more probable to happen as the speculators continue to open up more positions.