Ethereum outperforms bitcoin after Fed rate cut, signaling bullish market sentiment

Ethereum ETH +2.85% has outperformed bitcoin since the U.S. Federal Reserve cut its Federal Funds rate by 50 basis points last Wednesday. Since the U.S. central bank initiated its first rate reduction in four years, ether has appreciated by over 16%, while bitcoin has seen an increase of approximately 6% during the same period.

The Ethereum perpetual futures funding rate has flipped positive since the U.S. Federal Reserve rate cut last Wednesday, currently standing at 0.0082%, according to Coinglass data .

Crypto exchange YouHodler's chief of market, Ruslan Lienkha, told The Block that this suggests bullish market sentiment for ether, though it also comes with the risk of a market correction if the optimism becomes excessive or if external factors change. "A positive funding rate for ether reflects increased demand for leveraged long positions, signaling a bullish outlook," Lienkha said.

However, the analyst added that funding rates in the cryptocurrency market tend to be subject to increased volatility, although he did not forecast the increased likelihood of a long squeeze. "While funding rates typically indicate medium- to long-term trends in commodity markets, crypto funding rates are notably more volatile; however, in my view, opening a short position in anticipation of a long squeeze appears too risky at this time," Lienkha said.

Derivatives market signals growing optimism

QCP Capital analysts also observed the positive shift in market sentiment, noting improvements in funding rates across major exchanges. "Funding rates on major exchanges are improving, and basis yields are becoming more attractive, particularly with the recent interest rate cuts,” the analysts commented, highlighting increasing optimism in the crypto derivatives space.

Monday's Bitfinex Alpha report highlighted that altcoins, including ether , have outperformed bitcoin because they are coming out of over six months of suppressed open interest and valuations. "We believe the more pronounced uptick is because of the extreme depression in altcoin valuations and open interest that has been observed since March 2024," said the analysts.

Despite this rally, the Bitfinex report expressed concerns about rising volatility. Altcoin open interest has now surpassed the high seen before August's risk asset deleveraging event , increasing the risk of significant market fluctuations. “Open interest has reached $11.48 billion, exceeding the August high of $10.74 billion, which is a worrying sign of potential volatility in the altcoin market,” the report said.