Ether (ETH) soared to new record highs Thursday, but an overheated derivatives market may suggest higher volatility is on the way for the short term.<\/p>\n
The second-largest cryptocurrency by market value set the new lifetime high of $1,928 soon before press time, having first breached the previous peak of $1,821.49 reached on Feb. 13 early today, according to CoinDesk 20 data.<\/p>\n
In the derivatives market, the average level of the funding rate across major exchanges offering ether perpetuals (futures with no expiry) has risen sharply from 0.069% just short of the early January record high of 0.21%, according to data source Glassnode.<\/p>\n
It shows the derivatives market is overleveraged, Patrick Heusser, head of trading at Swiss-based Crypto Finance AG, told CoinDesk. With this current structure, I do not feel comfortable in running a lot of long exposure.<\/p>\n
The funding rate is calculated every eight hours and represents the cost of holding long positions. When perpetuals trade at a premium to spot price, the funding rate is positive (longs pay shorts).Hence, a very high funding rate is considered a sign of leverage being excessively skewed to the bullish side (overbought conditions) and often injects volatility into the market.<\/p>\n
Ether: Average funding rate <\/p>\n
In such situations, holding longs at high costs is attractive only if the bullish momentum remains strong. A pullback or consolidation can trigger an unwinding of longs, leading to a more profound price drop and a pick-up in price volatility. As of press time, ether is showing no signs of price congestion. <\/p>\n
However, the case for a continued steep rally looks weak, with spot market volumes falling on major exchanges such as Coinbase.<\/p>\n
Ether daily chart<\/p>\n
With the 10-day moving average of daily volume trending south, theres a question mark on the sustainability of recent gains. A low-volume price rise is often short-lived.<\/p>\n
That said, a pullback, if any, could be shallow and brief, as on-chain fundamentals are biased bullish.<\/p>\n
The number of coins held on exchanges has declined by 10% to 20.77 million in the past three months, according to data source CryptoQuant.It shows investors are either taking direct custody of coins or staking them into decentralized finance protocols, creating a sell-side liquidity shortage.<\/p>\n
Ether exchange reserves (number of balances held in exchange addresses)<\/p>\n
In the long-run, [the] ETH rally would keep going as long as ETH holdings in all exchanges are decreasing, Ki-Young Ju, CEO of CryptoQuant, told CoinDesk.<\/p>\n
Other metrics also paint a bullish picture. For instance, the 90-day average of active addresses on Ethereums network has increased to a new lifetime high of around 450,000, surpassing the 2017 peak, according to Glassnode. <\/p>\n
Ethereum: 90-day average of active addresses<\/p>\n
When theres greater usage, theres more demand for the cryptocurrency, and that drives the price up, Philip Gradwell, chief economist at the blockchain intelligence firm Chainalysis,told CoinDesk.<\/p>\n
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Read the original: Ether (ETH) soared to new record highs Thursday, but an overheated derivatives market may suggest higher volatility is on the way for the short term. The second-largest cryptocurrency by market value set the new lifetime high of $1,928 soon before press time, having first breached the previous peak of $1,821.49 reached on Feb. 13 early today, according to CoinDesk 20 data. Continue reading
\nEther Looks Overleveraged as Cryptocurrency Hits New High Over $1,900 - CoinDesk<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"