20 Sep 2022

ETH derivatives normalizing, while BTC funding rates reached 12-week low on Monday

Ethereum funding rates and futures basis has normalized post-merge, and the derivatives normalization had no major impact on prices.
Derivates (14).svg
Futures basis has declined towards 1% again as traders stay cautious while BTC trade near range lows.
Source: Skew
Futures basis has once again fallen amid market weakness and now trails around 1%, at levels close to historic lows.Ever since the June sell-off, futures have traded at low premiums compared to spot, indicating a prolonged low demand to add long exposure and overall bearish sentiment in the market. CME and offshore premiums align. Last week, we noted how healthy ETF inflows helped CME’s basis recover. These uplifting flows suddenly halted as elevated U.S. inflation numbers kicked in. Overall, activity is low in BTC futures, and traders remain cautiously positioned.
Funding rates declined to a 12-week low on Monday as BTC visited June lows
Funding rates stay negative to below neutral, and Monday’s push down towards June lows caused funding rates to reach lows not seen since July 1st.
Source: Skew, Binance, Bybit
Substantial long liquidations accompanied Monday’s negative funding push as $97m worth of longs got liquidated. Last week, we noted yet another all-time high in open value in BTC perpetual swaps. Since the notional open interest has declined, currently sitting at 380,000 BTC, down 40,000 BTC compared to last Tuesday, as the negative inflation shock and overall weak markets have shaken off overleveraged longs.
Source: Laevitas
Funding rates have mostly remained negative since the June crash and have only reached neutral terrain near local highs. This suggests that perp traders on aggregate perform badly in this choppy trading range, buying high and selling low, or vice versa for shorts.In these choppy conditions, sitting on your hands and waiting might be wise. Opportunities will arise in due time, and eroding your capital in a directionless market seems unwise.
ETH funding rates normalizes post-merge
Ethereum funding rates and futures basis has normalized post-merge, and the derivatives normalization had no major impact on prices.
Source: Skew (FTX)
From midnight Monday until the merge Thursday morning, shorts paid a total of 9.92% in funding to longs on FTX to hedge. However, as the merge took place, funding rates and futures basis quickly normalized towards August levels. Structural effects from the derivatives market had an insignificant impact on the overall ETH market post-merge, and ETH prices did not see a substantial move as market conditions in derivatives readjusted. However, ETH experienced substantial downside as U.S. equities opened in the red on Thursday. The ETH sell-off was fueled by optimism ahead of the merge. While funding rates and futures basis reached extreme lows, the $125m liquidation volume on Thursday suggests that under the hood, traders held significant long exposure as the merge neared, increasing the effects of the sobering post-merge sell-off.
Share this article