Traders and fans of Ethereum (ETH) rejoiced as the coin climbed past $3,488 in a day, hitting its highest point in more than two years. But a closer examination of market data shows that the most recent price increase is correlated with a rise in ETH funding rates, which has market participants concerned about potentially excessive volatility.

The Leverage of ETH Traders Exceeds Bull Cycle Peaks in 2021

Both Bitcoin and Ethereum reached all-time highs during the February 28th cryptocurrency market rally, with BTC touching $64,000 and ETH narrowly missing surpassing the $3,500 barrier. Though there is optimism, there is a chance of a pullback, according to signals from Ethereum’s derivative markets.

A notable increase in ETH funding rates was observed on February 28 according to the CryptoQuant Funding Rates indicator, which collects fees paid by active traders of perpetual futures contracts for a certain cryptocurrency. Within the daily period, the funding rate increased to 0.07%, the highest level since April 2021. This is noteworthy since it is a 40% increase above the top financing rate of 0.06% that was observed prior to ETH reaching its previous all-time high of $4,800 in November 2021.

Market Overheat and the Danger of a Prolonged Squeeze

A significant increase in funding rates often indicates a highly leveraged bull market with excessively bullish wagers and overwhelming optimism among traders. This scenario becomes risky since it leaves bulls vulnerable to large losses in the event that prices turn around, which could result in a long squeeze.

A long squeeze is an uncommon occurrence in the market where long position holders are forced to liquidate their holdings due to severe selling pressure from short-term traders. Bullish investors may suffer significant losses as a result of panic selling and margin calls on existing leveraged long contracts, which could intensify the downward price movement.

Prediction for the Price of ETH: Possible Support at $3,100

The price of ETH may be vulnerable to a decline in the next few days, according to the overheated market patterns suggested by the funding rate surge on February 28. But the quick money inflows and optimistic investor mood ahead of the May 2024 Ethereum ETF ruling should provide strong purchasing pressure to keep the level of support over $3,000.

This prediction is supported by IntoTheBlock’s global in/out of money statistics, which group current ETH holders according to their entrance prices. With the price of Ethereum reaching $3,340 right now, 96% of holders are now in positive positions. These holders’ unwillingness to sell could lessen the likelihood of a sharp decline. Notably, the 9.7 million addresses that purchased 10.3 million ETH at the highest price range of $3,176 can provide a strong support level.

The price of ETH may rise to $4,000 in March 2024 if prices rise over $3,500, as traders with large leverage holdings have forecast, despite the impending sell-wall above the psychological resistance level of $3,500. Achieving this, though, might be difficult given the resistance at the $3,500 level.