Analysts looking at the crest of Ethereum’s massive move upward over the past year are finally starting to suggest that the coin and its ecosystem may be overvalued.
“Ether soared to new record highs Thursday, but an overheated derivatives market may suggest higher volatility is on the way for the short term,” writes Omkar Godbole today at Coindesk. For years, Godbole’s analysis of BTC, ETH and other digital assets has been second to none in describing the moves of daily markets.
In detailing how Ethereum derivatives signal future volatility, Godbole cites the funding rate metrics reported by Glassnode for ETH.
“The funding rate is calculated every eight hours and represents the cost of holding long positions,” he writes. “When perpetuals trade at a premium to spot price, the funding rate is positive (longs pay shorts). Hence, a very high funding rate is considered a sign of leverage being excessively skewed to the bullish side (overbought conditions) and often injects volatility into the market.”
A decrease in spot market volumes, Godbole says, suggests rally activity may be ending.
The new analysis replaces long-standing bullishness on Ethereum that continued as the coin spiraled up from lows of around $100 last year to current value ranges from $1800-$2000. For reference, here’s how Ekta Mourya described Ethereum’s rally weeks ago:
“ETH traders are bullish based on the on-chain analysis,” Mourya wrote. “98 percent of traders are in profit and despite that, its active supply has dropped. Based on these metrics, it is likely that ETH may be gearing up for another pump post the current recovery. Ethereum’s consistent consolidation has led to situations in which demand and supply may overlap on exchanges. What happens post the consolidation is that demand is going to be far greater in comparison to supply, and a price rally may materialize.”
If you have gained handily from ETH, now may be the time for some profit taking. You’ve been warned.