The record of $ 8 billion in open interest on Ethereum futures shows that the pros are “here”.


The price of ether continues to rise and many analysts are calling for $ 3,000 as a short-term goal. All of this “success” comes in the face of Ether (ETH) ‘s bottleneck in terms of high fees, network congestion and a tense situation with miners.

With Decentral Finance (DeFi) applications at its center and a total volume on exchanges of more than $ 4 billion per day, the price of Ether has risen by over 200% since the start of the year, marking a new one on April 13 at $ 2,300 All time high.

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This impressive price hike caused Ether’s open interest to hit a record high of $ 8 billion. The number equals 50% of the Bitcoin (BTC) markets two months ago.

Some investors might say that derivative contracts pose a risk of major corrections due to liquidations, but keep in mind that the same instrument can be used for both hedging and arbitrage.

Ether futures aggregate open positions. Source: Bybt

Not every short seller strives for lower prices

While the typical retailer relies primarily on perpetual futures (inverse swaps) for short-term leverage positions, market makers and professional traders tend to seek returns.

This is usually achieved through “cash and carry” strategies that combine option trades. Therefore, to understand whether the current open interest represents a risk or an opportunity, investors need to consider other indicators such as the funding rate.

Massive liquidations typically occur when buyers (longs) are overly optimistic. Therefore, a 7% intraday correction will end everyone with leverage of 15x or greater. Despite headlines, orders worth $ 1 billion would represent just 6% of the current average.

Total volume of the ether futures. Source: Coinalyze

As shown above, the total volume of Ether futures will rise over $ 25 billion if additional volatility occurs. These data mean that the potential impact on liquidation may be even more negligible.

The effects of futures go both ways

Analysts tend to ignore the buy-side impact of a futures contract, especially during a bull run. Nobody blames derivatives for a sudden 7% rise in prices, although that may have accelerated the movement. This theory is especially true given the high rate of funding charged for longs. Traders should avoid these moments unless they are confident that the rally will continue.

Ether Perpetual Futures 8-hour financing rate. Source: Coinalyze

Whenever longs demand more leverage, the funding rate becomes positive. A charge of 0.15% every eight hours is equivalent to 3.2% per week. Hence, arbitrage desks and whales buy ethers on regular exchanges while closing the futures to get the funding rate. This trade is known as “cash and carry” and does not depend on whether the markets are moving up or down.

The markets will eventually normalize on their own

As the current open positions in futures continue to rise, this reflects that the markets are getting healthier and bigger players can participate in derivatives trading.

The CME listing was undoubtedly a major milestone for Ether, and this is confirmed by the $ 8 billion open interest mark.

The funding rate will adjust as more participants are welcomed to the cash and carry page or as positions are terminated due to high costs.

It doesn’t necessarily end in billions of dollars in liquidations, but it certainly increases the risk of them occurring. However, the same contracts could have been used to drive the price of ether up and offset the effects over time.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.