Ethereum Surges to $3,590 as Futures Open Interest Reaches $22 Billion
Ethereum #ETH has increased by 15% in the past week, approaching the $3,600 level for the first time in five months. Currently trading around $3,590, it achieved a 4.68% gain in the last 24 hours, sparking investor optimism for an altcoin rally.
This growth coincides with record-high Ether futures open interest, reaching $22 billion on November 27, a 23% increase over the last month. The last occurrence of such high open interest was when ETH traded above $4,000 in May, then at $14 billion.
Despite this optimism, analysts warn against overinterpreting elevated leverage. Increased open interest indicates more activity but does not necessarily reflect bullish sentiment, as derivatives markets encompass both long and short positions.
Risks from Leveraged Trading
A significant risk in this leveraged environment is the exposure of retail traders, often termed "degens," who may use leverage ratios up to 20x. A mere 5% daily price drop can trigger mass liquidations, resulting in substantial losses. From November 23 to November 26, $163 million in long ETH futures were liquidated, showcasing the risks associated with overleveraged positions.
Perpetual contracts, which closely track ETH's spot price, indicate retail futures activity. The funding rate for ETH perpetuals is currently near a neutral 2.1% per month, with a brief spike above 4% earlier this week, suggesting subdued retail demand for leveraged longs despite Ethereum's price increase.
Ethereum's monthly performance is also notable, with a 37% gain boosting its market capitalization to $431 billion, a 35% increase during the same timeframe.
Institutional Interest in Ethereum ETFs Grows
Further contributing to Ethereum’s positive momentum is the performance of Ether-based exchange-traded funds (ETFs). On Wednesday, Ether ETFs recorded $90.10 million in inflows, totaling $240 million since their launch in late July. This growing institutional participation contrasts with the initial slow uptake of Ether ETFs, indicating rising confidence in the cryptocurrency's long-term viability.
The central question remains whether Ethereum's rise will lead to a broader altcoin rally. Historically, altcoin seasons follow Bitcoin bull markets, driven by decreasing Bitcoin dominance and strong Ether performance. Recently, major altcoins like XRP and Solana (SOL) have demonstrated two-digit rallies.
However, according to CryptoQuant CEO Ki Young Ju, the onset of an altcoin season would necessitate significant capital influx from retail traders, a variable that is still uncertain.