Author: Marcel Pechman, CoinTelegraph; Translation: Bai Shui, Golden Finance
Between November 20 and 27, ETH soared 15%, approaching the $3,500 mark for the first time in four months. This surge coincided with Ethereum futures open interest reaching an all-time high, raising questions among traders: Does the rise in leverage indicate excessive bullish sentiment?
Total open interest in Ethereum futures, ETH. Source: CoinGlass
In the 30 days ending November 27, the total open interest in Ethereum futures surged by 23% to $22 billion. In comparison, three months ago on August 27, Bitcoin futures had open interest of $31.2 billion. Additionally, when ETH traded above $4,000 on May 13, the open interest in ETH futures was $14 billion.
Dominating the market are Binance, Bybit, and OKX, which collectively account for 60% of ETH futures demand. However, the Chicago Mercantile Exchange (CME) is steadily expanding its footprint. Notably, the CME currently holds $2.5 billion in open contracts for ETH futures, indicating increasing institutional participation—a development often seen as a sign of market maturity.
Whether from institutional or retail investors, the high demand for leverage does not necessarily indicate bullish sentiment. The derivatives market maintains a balance between buyers and sellers, creating opportunities for strategies that take advantage of various situations, including price declines.
For example, cash arbitrage strategies involve buying Ethereum in the spot (or margin) market while selling the same nominal amount in Ethereum futures. Similarly, traders can take advantage of the interest rate differential by selling longer-term contracts (e.g., contracts expiring in March 2025) while buying shorter-term contracts (e.g., December 2024). These strategies do not reflect bullish sentiment but significantly increase demand for Ethereum leverage.
Ethereum 2-month futures annualized premium. Source: Laevitas.ch
On November 6, the annualized premium of two-month ETH futures exceeded the neutral threshold of 10% and maintained a strong level of 17% over the past week. This rate allows traders to earn fixed returns while fully hedging risk exposure through cash arbitrage strategies. However, it is worth noting that some market participants accepted a cost of 17% to maintain leveraged long positions, indicating a moderate bullish sentiment in the market.
Due to retail investors, ETH liquidations may increase.
In a high-leverage environment, the biggest risks often come from retail traders, colloquially known as 'degens,' who frequently use leverage as high as 20x. In this scenario, a standard daily price drop of 5% can wipe out the entire margin deposit, triggering liquidations. Between November 23 and 26, $163 million in leveraged long ETH futures positions were forcibly liquidated.
To gauge the health of Ethereum retail futures positions, perpetual contracts are a key indicator. Unlike monthly contracts, perpetual contracts closely reflect ETH spot prices. They employ variable funding rates—typically ranging from 0.5% to 2.1% per month—to balance leverage between longs and shorts.
ETH perpetual futures 8-hour funding rate. Source: Laevitas.ch
Currently, the funding rate for Ethereum perpetual futures is close to the neutral threshold, at 2.1% per month. Although it briefly spiked above 4% on November 25, it did not sustain. This indicates that even with Ethereum prices rising 15% weekly, retail demand for leveraged longs remains sluggish.
These dynamics reinforce that the rise in Ethereum open positions reflects institutional strategies—such as hedging or neutral positions—rather than purely bullish sentiment.
