Ethereum successfully completed its long-awaited transition to proof-of-stake via "the Merge" on Sept. 15, while traders have been increasingly shorting Ether (ETH) in anticipation of a sell-the-news event.  

Ethereum funding rate plumme

Ether's futures funding rates across leading derivatives platforms dropped below zero—to their worst levels to date—before the Merge. The rate dropped to as low as -0.6% on BitMex. 

ETH funding rates history. Source: Coinglass

Funding rates are a percentage of the fee paid to either short or long position holders. The platform decides the fee based on the difference between the perpetual futures contract and the spot price.

Therefore, traders consider a market bullish when the funding rate is positive. Conversely, a negative funding rate hints at a bearish sentiment in the market. Let's understand why with an example.

Currently, Ether's funding rate average is around -0.1%. In other words, traders with a $1 million short ETH position are willing to pay those with long positions $1,000 every eight hours (based on when platforms recalculate the funding rates).