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Author: Marcel Pechman Source: cointelegraph Translation: Shan Oppa, Bitchain Vision
Ether rose 8.8% between October 14 and 15, but the resistance at $2,650 was more challenging than expected.Traders are increasingly worried that the Ether futures total open interest contract hit an all-time high on October 16, which could be a warning sign.
The surge in demand for leveraged ETH positions usually precedes a sharp pullback in prices.On October 15, the total addressable market for Ethereum futures exceeded 5 million ETH for the first time, an increase of 12% from four weeks ago.
Ethereum futures open contracts since 2020, ETH.Source: CoinGlass
On August 2, the last time Ether’s total open interest peaked, ETH’s price plummeted 31.7% in less than four days, from $3,205 to $2,186.Will history repeat itself this time?
Increased demand for ETH futures is not necessarily negative
Increased demand for ETH futures does not necessarily mean negatives, so the key insight that can be drawn from these data is whether the system-wide leverage ratio is expanding or shrinking.The larger the bet, the greater the possibility of sudden price fluctuations due to forced liquidation.
Although the derivatives market seems like a zero-sum game, their impact on spot prices is significant.This is mainly because futures contracts tend to trade much larger volumes due to leverage.In addition, whales and market makers rely on derivatives to quickly hedge risks, a process that is nearly impossible to achieve in the spot market, which has a low liquidity in the spot market.
When a forced liquidation of US$50 million or more occurs in the futures market, the arbitrage counter will immediately reduce the risk of the spot market.This action further accelerates price volatility—whether it is rising or falling—has an effect known as “chain liquidation.”This is exactly why traders monitor open contracts to detect the risk of unexpected price fluctuations due to excessive leverage.
On August 2, open interest peaked at 4.75 million ETH, up 15% from four weeks ago.Essentially, the current market situation is very similar to the structure in August.A total of $279 million of leveraged long positions were forced to liquidate – a figure that does not include traders using stop orders or voluntary closing positions during this period.
Ether/USD 24-hour price.Source: TradingView
Other examples include the open interest rate that broke 4 million ETH on April 1, up 21% in four weeks.At that time, the price of Ethereum started at $3,648 and eventually fell to the bottom of $2,604 on April 13, down 24% in 12 days.Therefore, there is sufficient historical evidence to suggest that the peak formation of Ether open interest usually precedes a large pullback in price.
Bitcoin and broader market trends may set the tone for ETH prices
While post-mortgage analysis makes it easier to identify local peaks in the ETH open contract chart, it is impossible to predict whether the number will continue to grow and exceed 5.1 million ETH.The recent spikes of such arise when the wider cryptocurrency markets are consolidating sideways or undergoing short-term adjustments, adding another layer of complexity to the analysis.
Assuming the overall trend of the cryptocurrency market remains neutral, it is entirely possible that Ether’s price plummets by 20% to 25% to around $1,960, so traders should be prepared for this situation.On the other hand, if Bitcoin eventually breaks through the $70,000 resistance level, the increased leverage use of Ethereum may benefit the bullish momentum, which may lead to a price appreciation.
