Originally published on: November 27, 2024
The price of Ether (ETH) saw a significant 15% surge from November 20 to November 27, approaching the $3,500 mark for the first time in four months. This rally coincided with a new all-time high in Ether futures open interest, sparking speculation among traders about the potential start of an ETH bull run.
Over the span of 30 days leading up to November 27, aggregate open interest in Ether futures skyrocketed by 23% to reach a staggering $22 billion. Comparing this to the $31.2 billion in Bitcoin futures open interest on August 27 and the $14 billion in Ether futures open interest when ETH surpassed $4,000 on May 13, it is clear that the demand for ETH futures is escalating.
Leading the pack in this market are platforms like Binance, Bybit, and OKX, which collectively hold a 60% share of the ETH futures demand. However, the Chicago Mercantile Exchange (CME) is also making its presence known with $2.5 billion in ETH futures open interest, indicating a surge in institutional participation and marking a sign of market maturity.
While high demand for leverage doesn’t always equate to bullish sentiment, the derivatives market offers a balanced playing field for various trading strategies. For instance, the cash and carry strategy involves simultaneously buying Ether in the spot market and selling the same amount in ETH futures. Similarly, traders can capitalize on rate differences by selling longer-term contracts while buying near-term ones.
The annualized premium for two-month ETH futures has consistently exceeded the neutral threshold at 10%, sustaining at a robust 17% over the past week. This not only offers traders a fixed return but also hints at a moderate level of bullishness, as some are willing to pay a 17% cost to maintain leveraged long positions.
One of the key risks in a highly leveraged environment is the presence of retail traders using significant leverage, which can lead to liquidations during sharp price drops. Retail demand for leveraged longs in ETH perpetual futures remains muted, indicated by the 2.1% funding rate per month, despite the recent 15% price increase in Ether.
Overall, the surge in Ether open interest appears to be primarily driven by institutional strategies like hedging and neutral positioning rather than pure bullish sentiment. As the market continues to evolve, it will be interesting to see how these dynamics play out in the coming weeks.