Ethereum Traders Eye $4,000 Price Target as Markets Overheat 

Ethereum (ETH) price surged above $3,488 within the daily timeframe on Feb 28, its highest level in over 2-years. But market data shows that the latest price upswing has saw ETH funding rates rise to historic peaks, putting the markets at risk of extreme volatility. 

If the bears capitalize to force a pull-back, where will ETH price find steady support? 

ETH Traders Leverage Tops 2021 Bull Cycle Peaks

The crypto market rally intensified on Feb 28, as Bitcoin and Ethereum prices both advanced to historic peaks.

While BTC price hit $64,000, ETH price came within just $12 of breaking the $3,500 resistance. However, vital signals from the Ethereum derivative markets suggest the pioneer smart-contract network could be at risk of a pull back. 

CryptoQuant Funding Rates metric, presents a daily aggregate of fees paid between active traders of perpetual futures contracts for a specific cryptocurrency.

The chart below, shows that ETH funding rate recorded a noticeable spike on Feb 28, rising as high as 0.07% within the daily timeframe, the highest since April 2021. 

A closer look at the historical market trends shows this is about 40% higher than the 0.06% Funding rate peak recorded in the build-up to ETH’s current all-time high price of $4,800 in November 2021.

 

Typically, such a dramatic surge in Funding Rates suggests that traders are overwhelmingly positive and markets are getting overheated with highly leveraged bullish bets. 

This market dynamic is often tricky as it exposes the bulls to substantial losses if prices reverse course, potentially, leading to a long squeeze.

A long squeeze is a rare market phenomenon where aggressive selling pressure from short-term traders forces long position holders to liquidate their positions, exacerbating the downward price movement. 

This cascading effect can trigger panic selling and margin calls on existing leveraged LONG contracts, further amplifying the price decline and causing significant losses for the bulls. 

Prediction: ETH Price Can Find Support at $3,100 

The overheated market trends denoted by the funding rates spike on Feb 28 suggests that ETH price is at risk of a pull-back in the coming days.

However, given the rapid capital inflows and positive sentiment from investors loooking to front-run the Ethereum ETFs verdict slated for May 2024, ETH price will likely find sufficient buying pressure to maintain a relatively high support level above $3,000.

IntoTheBlock’s global in/out of money data which categorizes existing ETH holders by their entry prices also affirms this outlook. 

It shows that with Ethereum currently trading at $3,340 at press time, about 96% of current holders are in profit positions. Majority of them may be reluctant to sell, thereby cooling any prospects of a rapid downswing. 

In essence, the  9.7 million addresses that acquired 10.3 million ETH at the maximum price range of $3,176 could mount a daunting support level. 

Yet, if prices upswing advances above $3,500 as predicted by traders mounting extreme leverage positions, ETH price could rally toward $4,000 in March 2024. However, this could be a tall order considering the looming sell-wall at the $3,500 psychological resistance.