Can Bitcoin’s Funding Rate Predict Where Ethereum Price Will Head Next?

Bitcoin price often has a major influence to the performance of Ethereum and other altcoins. A keener look at its liquidity cycles and funding rate can help to predict the next Ethereum price action.

Bitcoin is the largest cryptocurrency by market capitalization. It stands tall at $1.68 trillion, while Ethereum (ETH), the second largest crypto’s market cap is $226 billion. Due to capital flows, the correlation of altcoins, including Ethereum, with Bitcoin is high. Due to this, a sudden crash or rally in BTC is reflected by the crypto market as well.

Why Bitcoin’s Funding Rate Matters to Ethereum Price?

Funding rate is a concept developed to maintain the price of perpetuals with the spot price of the underlying asset. If the funding rate of Bitcoin is high, it suggests that it is expensive to long, i.e., longs pay shorts and vice versa. Often this is a sell signal. Since this metric will determine the directional bias for BTC, it can be used to determine how other altcoins, including Ethereum (ETH) will react.

According to on-chain analyst Axel Adler Jr., the average funding rate of Bitcoin on Binance, ByBit, OKX, and Deribit has dropped into the negative territory. This is a bullish signal that has previously resulted in bullish reversal.

Adler adds that despite this bullish sign, “poor macroeconomic indicators” are “blocking” Bitcoin and Ethereum prices from rallying.

“The corporate sector is actively buying coins, spot market selling pressure is minimal, experienced investors have stopped selling, LTH have returned to accumulation, and several on-chain metrics indicate a normalization of market conditions after the overheating phase.” 

If it weren’t for the macroeconomic conditions, ETH’s value could have pushed higher with Bitcoin price. Furthermore, positive signals from the Fed and the Trump administration has also paved the way for renewed “inflow of cash via ETFs, potentially triggering the start of a new rally”, says Adler. 

Ethereum Price Analysis

Analyst Michaël van de Poppe explained that an Ethereum price rally is possible if the ETHBTC ratio flips from 0.03 to a support level.

“The only thing $ETH needs to do is to bottom out here. And that’s a very, very hard task.”

On the other hand, there is a massive bullish divergence developing between Ethereum price and Relative Strength Index (RSI) since July 2024. 

A bullish divergence is when the price produces lower high and RSI produces a higher lows. This non-conformity is indicates that momentum is rising while price is not reflecting it, which suggests a bounce is likely.

If the RSI divergence plays out, investors can expect Ethereum price prediction to forecast a massive rally. The short-term target would be $3,000. Beyond this, $4,000 and $5,000 are good psychological levels to watch.