ETH’s Negative Funding Rates May Not Be a Buy Signal This Time
By [Author Name] – February 3 2026
Key takeaways
- Ether slid 28 % over the past week, settling around $2,110, while leveraged long positions were forced to liquidate more than $2 billion.
- The annualised funding rate on ETH perpetual contracts turned negative, meaning short sellers are now paying the premium to keep their positions.
- Spot‑ETH exchange‑traded funds (ETFs) recorded net outflows of roughly $447 million in the last five days, indicating waning institutional appetite.
- Activity on Ethereum‑based decentralized exchanges dropped 47 % year‑to‑date, leaving the network with a markedly lower transaction volume and a weaker on‑chain demand signal.
Market backdrop
Ether’s price correction has been one of the steepest among the major cryptocurrencies this month. While Bitcoin fell about 17 % and Binance Coin 14 %, Ethereum’s decline outpaced its peers, eroding roughly 10 % of its market‑cap relative to the broader crypto index over the past 30 days. The drop coincided with a broader risk‑off sentiment in equities; the Nasdaq Composite slipped 1.4 % as investors responded to mixed signals from the technology sector and the U.S. Federal Reserve’s stance on monetary policy.
Funding rates: What the negative number means
Funding rates are periodic payments that align the price of perpetual futures with the spot market. Historically, a positive ETH funding rate indicates that longs are paying shorts to keep the contract price above spot, reflecting bullish demand. On Tuesday, the rate turned negative for the first time in several months, signalling that short sellers are now compensating long holders.
A negative rate can be interpreted in two ways:
- Extreme bearishness – market participants may be overly pessimistic, creating a contrarian entry point.
- Liquidity squeeze – the rapid unwind of leveraged longs (over $2 billion in liquidations within 24 hours) has removed much of the upward pressure, leaving the price vulnerable to further downside.
Given that the funding rate reversal follows a period of massive long liquidations, analysts caution that the signal does not automatically translate into a price rebound.
ETF outflows add pressure
Institutional exposure to Ethereum via spot‑ETF products has also contracted. Data from the past five trading days show a cumulative $447 million net withdrawal from U.S.-listed ETH ETFs, despite continued accumulation by a handful of firms such as Bitmine Immersion, Sharplink, and The Ether Machine. The outflow highlights a broader cooling of institutional demand that could translate into selling pressure on the spot market, especially considering the roughly $14.4 billion worth of Ethereum held across these funds.
On‑chain activity: A quieter network
Ethereum’s decentralized finance (DeFi) ecosystem has seen a pronounced slowdown. Monthly transaction volume on Ethereum‑based DEXs fell from $98.9 billion in October 2025 to $52.8 billion in January 2026—a 47 % contraction. Lower usage reduces the frequency of the network’s “burn” mechanism, which historically helped shrink the circulating supply of ETH and support price.
The reduced activity also reflects waning interest in dApps and a slowdown in new project launches, further weakening the fundamentals that had previously buoyed ETH’s valuation.
Notable on‑chain movements
During the same period, addresses linked to Ethereum co‑founder Vitalik Buterin transferred roughly $2.3 million worth of ETH to a donation wallet. The move is part of a longer‑term plan to allocate 16,384 ETH (approximately $45 million at current prices) toward privacy, open‑hardware, and security initiatives. While the transfer is modest relative to market depth, it underscores the continued goodwill‑driven activity within the ecosystem.
Outlook
The convergence of a negative funding rate, heavy leveraged‑long liquidation, sizable ETF outflows, and a sharp decline in on‑chain usage paints a picture of a market that is more risk‑averse than bullish. Although a negative funding rate can sometimes precede a short‑cover rally, the current macro environment—characterised by higher‑yield bonds, rising precious‑metal prices, and uncertain monetary policy—dampens the likelihood of an immediate reversal.
Traders and investors should therefore treat the negative funding rate as a data point rather than a definitive buy signal. Continued monitoring of on‑chain metrics (transaction volume, gas fees, and ETH supply dynamics) and institutional flow patterns will be crucial for assessing whether the current bearishness is overstated or symptomatic of a longer‑term correction.
This article is for informational purposes only and does not constitute investment advice. Readers should conduct their own due diligence before making any trading or investment decisions.
Source: https://cointelegraph.com/news/eth-funding-rate-turns-negative-but-us-macro-conditions-mute-the-buy-signal?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
