Ethereum Funding Rate Surges Amid Overheated Market

The Ethereum funding rate has surged to +0.0175% over the past four hours and +0.0893% over the past 24 hours, a sign of an overheated market. This high positive funding rate can lead to losses for traders who ignore the cumulative costs. Lisa, a trader, held a $10,000 long position in Bitcoin perpetual futures with a funding rate of 0.03%, resulting in daily fees of $72.

This is not the only issue; many traders enter long positions during bull markets and forget about the funding bill. They also fail to account for the difference between spot and perpetual prices. This discrepancy can be exploited by using a cash-and-carry strategy, but even this comes with basis risk if the price moves too fast.

The Ethereum open interest has risen 0.42% to $32.70 billion on September 2, while funding remained more than twice the Bitcoin funding rate. This growth in open interest can lead to a higher likelihood of liquidation, as seen on September 1 when Bitcoin liquidations hit $77.08 million.