The increase in Ethereum funding rates suggests that traders are optimistic, as ETH price approached $4,000 before the Dencun upgrade.
Ethereum (ETH), the second-largest cryptocurrency in the world, maintains its ascent to $3,900, advancing an additional 7%.
At the time of writing, the price of Ethereum is $3,775 and its market cap has surpassed $450 billion.
Funding Rates for Ethereum on the Rise
A recent surge in the price of ETH ignites a frenzy of buying activity in the cryptocurrency market and signifies investors’ renewed confidence.
According to CryptoQuant’s analysis, a significant measure shedding light on these market dynamics is Ethereum’s financing rates, which serve as a gauge for the intensity of trading in the futures market.
Meanwhile, negative rates indicate bearish sentiment among traders, while positive rates indicate a bullish outlook.
However, Ethereum funding rates have witnessed a significant increase, mirroring the levels witnessed in late 2020, when ETH initiated a strong bullish surge towards its peak.
The current increase in funding rates highlights a dominant bullish outlook among futures traders, suggesting the possibility of a continued upward trend.
Notwithstanding the optimistic sentiment that accompanies the increase in funding rates, investors ought to exercise caution due to the potential risks that may arise from excessively high values.
An increase in interest rates heightens the probability of long liquidation cascades, which may result in increased market volatility and unanticipated corrective actions.
Consequently, amid ETH’s bullish momentum, traders must implement effective risk management strategies and closely monitor financing rates, according to CryptoQuant.
Preparation for the Dencun Upgrade
Although investors have engaged in extensive profit-taking, Ether has resumed its ascent, with the significant $4,000 milestone in sight.
The Ethereum Dencun upgrade, which is slated to launch on March 13, represents a significant progression on the Ethereum mainnet.
This achievement is of substantial importance for Layer 2 chains and rollups, as it signifies advancements in Ethereum’s technical infrastructure.
Proposed to be the most significant improvement to the Ethereum blockchain since the Merge, the Dencun upgrade implements “proto-danksharding,” an innovative feature.
This advancement entails the implementation of blobs, which reduce strain on the foundational blockchain infrastructure and reduce the expenses for Layer 2 chains and rollups that are dependent on the Ethereum network.
Essential to the Dencun upgrade is EIP-4844, a crucial Ethereum Improvement Proposal that enables the implementation of this functionality.