Analysis: Ethereum futures contract funding rate has reached a high point since the end of July, excessive leverage may amplify the impact of macro events

The funding rate for Ethereum perpetual futures has risen to a high point since the global liquidation event in August, when major cryptocurrencies such as Bitcoin and Ethereum fell more than 20% with stocks. Derivatives trader Gordon Grant warns that the cryptocurrency perpetual futures market is still susceptible to sell-offs driven by over-leveraged positions, which could be jointly pushed by technical and macroeconomic factors.

Coinglass data shows that the funding rate for unliquidated positions in Ethereum futures is currently at 0.0116%, the highest level since July 29th, when the trading price of Ethereum was $3316, but its price plummeted by 22% in early August. The sudden interest rate hike by the Bank of Japan led to unwinding yen arbitrage trades, triggering a global stock market crash, which largely triggered that plunge. Although the initial impact was essentially exogenous, Grant explains that highly leveraged crypto linear derivatives futures markets may have amplified this effect.

In an interview, Grant said if another such exogenous shock occurs, cryptocurrency markets will face vulnerabilities similar to those seen in early August with macro events like unwinding yen arbitrage trades leading to liquidations.

He added other factors are also affecting markets. For example investors are cautious about potential pullbacks from Nvidia and other well-performing chip stocks; China's recent stock market rebound slowing down; and ongoing tensions spreading across Middle East. He believes these factors combined with existing leverage in crypto markets could catalyze or exacerbate sharp downturns (even if temporary), especially during options-driven liquidations.(The Block)