Data reveals a divergence in the Funding Rate indicator between Bitcoin and Ethereum, with traders taking long positions on BTC and short positions on ETH.
In a recent post on X, the on-chain analytics firm Santiment discussed how the Funding Rate has evolved for both cryptocurrencies amid recent market volatility.
Bitcoin and other cryptocurrencies experienced sharp price swings over the past day. BTC briefly surged to $90,300 before quickly dropping back to $86,000 and later extending its decline to $85,300. While Bitcoin eventually returned to levels similar to those before the sudden surge, Ethereum did not. After rallying to $3,000, ETH fell to $2,830 and then dropped further to around $2,790. Prior to the volatility, Ethereum was trading near $2,920.
This difference in price action may be contributing to the divergence in market sentiment within the derivatives market, as measured by the Funding Rate. The Funding Rate tracks the periodic fees paid by traders on centralized exchanges. A positive value indicates that long investors are paying short investors, while a negative value suggests bearish positions outweigh bullish ones.
The chart shared by Santiment illustrates how the Funding Rate for Bitcoin and Ethereum has changed over the past month. Bitcoin’s Funding Rate has remained positive in recent days, reflecting a dominant bullish sentiment among traders, even after the price volatility. In contrast, Ethereum’s Funding Rate was positive before the volatility but turned negative following its rapid surge and crash, indicating that short positions have begun to outnumber long ones.
However, the weakening bullish sentiment around Ethereum may not necessarily be a negative development. According to Santiment, highly leveraged long positions have historically led to sharp liquidation events and increased volatility, a pattern observed during recent market tops and pullbacks. Therefore, with Ethereum’s Funding Rate now negative, the risk of volatility may be reduced.
That said, Bitcoin’s long-heavy market remains relevant. As Santiment notes, “all assets will still move with Bitcoin, meaning Bitcoin’s funding rates must stay neutral or go negative in order to justify a clear path back to $100K and for altcoins to rebound.”
Following its plunge on Wednesday, Bitcoin has recovered to $87,100.
Frequently Asked Questions
FAQs Bitcoin Ethereum Diverging Market Sentiment
Beginner Questions
1 What does it mean that Bitcoin and Ethereum are moving in opposite directions
It means that traders and investors are placing different types of bets on each asset Currently more people are betting on Bitcoins price going up while more people are betting on Ethereums price going down
2 What is a long position
A long position is when you buy an asset expecting its price to increase so you can sell it later for a profit
3 What is a short position
A short position is a bet that an assets price will fall Traders borrow the asset sell it immediately and hope to buy it back later at a lower price to return it pocketing the difference
4 Why would someone short Ethereum while going long on Bitcoin
Traders might see different shortterm prospects for each They could believe Bitcoin has stronger catalysts while Ethereum faces temporary headwinds
5 Is this a common situation
Yes its common for major cryptocurrencies to have periods of diverging sentiment They are different assets with different use cases communities and market drivers so they dont always move in sync
Intermediate Advanced Questions
6 Where is this data about long and short positions coming from
This data typically comes from derivatives exchanges that publicly report the ratio of long vs short positions or total open interest for futures and perpetual swap contracts
7 What are funding rates and how do they relate to this
Funding rates are periodic payments between long and short traders in perpetual swap markets If longs dominate Bitcoin they pay a fee to shorts If shorts dominate Ethereum they pay a fee to longs This mechanism helps balance the market
8 Could this divergence signal a broader market rotation
Possibly It might indicate that capital is rotating from riskier altcoins back into the perceived safe haven of Bitcoin often seen as digital gold This sometimes happens during periods of market uncertainty
9 What are the risks of following this crowd sentiment
Going with the