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More crypto traders are selling Ether in the derivatives market as the underlying blockchain is set to undergo its biggest technical upgrade this week, according to trading data.

More Crypto Traders Are Selling Short Ether in the derivatives market as the underlying blockchain is set to undergo its biggest technical upgrade this week, according to trading data.

The financing rates of Bitcoin and Ether perpetual futures have diverged sharply over the past weekend, according to crypto data firm Kaiko. Ether’s funding rate has fallen to its most negative level since July 2021. Exchanges use the funding rate – or trading cost – to tie contracts to their underlying spot price. When the rate is positive, those who holding long positions pays interest to investors who are short, and vice versa Visa.

Crypto traders tend to favor perpetual contracts — which, unlike traditional calendar futures, don’t expire — in part because they allow them to hold highly leveraged positions in place. Ether fell for the first time in six trading sessions on Monday, dropping as much as 3.7% to $1,694.

The growing interest in Ether comes as the merger, the highly anticipated upgrade on the Ethereum block chain, should take place this week. The upgrade is intended to move the current system of using Ethereum miners to a more energy-efficient system using staked coins.

“With the meltdown happening this week, people may be hedging because ETH price has mostly gone up while funding rates have turned negative,” said Andrew Tu, head of growth at the algorithmic crypto trading company Efficient Frontier.

According to Zaheer Ebtikar, portfolio manager at crypto hedge fund LedgerPrime, many investors are hedging their long spot Ether positions. Shorting Ether in the derivatives market is a way to hedge their risk.

Another reason for Ether being long in the spot market, Ebtikar said, is that traders can receive “free money” thanks to the efforts of some Ethereum miners to maintain a different version of Ethereum in China. execution by minors.

Meanwhile, some traders also expect the merger to become a “news seller” event for the market. Ether has quintupled in the past year and hit a record high of around $4,866 in November. It has fallen by around 50% this year.

“Investors in the perpetual futures market generally agree that most of Ether’s positive fundamental catalysts have already been priced in, with little further upside expected post-merger,” said Gabriel Selby, senior research analyst at CF. Benchmarks, property of Kraken Exchange.

An extremely negative funding rate means that short traders pay high fees to keep their positions open.

“The mentality of a trader is also very different from that of a long-term investor – in this case they just think that during these two to three days it is good to pay if they think that ETH will go down significantly,” Ebtikar explained. “If the bet is that it’s ‘sell the news’ and ETH will sell, then it’s worth it.”

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