Ether (ETH) surged 11.7% between September 17 and 19, hitting a three-week high of $2,572. The price movement coincided with a surge in open interest in Ether futures, which reflects the total number of contracts on derivatives exchanges. As a result, traders are becoming concerned that increased leverage could amplify potential price swings.
Low Interest Rates Support ETH's Uptrend, But US Economy Remains at Risk
ETH’s recent rally mirrors the broader cryptocurrency market’s 8.3% gain, fueled by U.S. interest rate cuts and strong labor market data. The momentum also pushed the S&P 500 to a record close on Sept. 19. Low interest rates reduce the cost of companies issuing new debt, easing concerns about a potential stock market correction.
However, economists remain divided on whether the US Federal Reserve (Fed) is effective in balancing economic growth and recession risks, according to a Yahoo Finance report. This uncertainty has left cryptocurrency investors cautious, questioning whether it is too early to judge the success of the Fed's monetary strategy.
FedEx shares fell 15% on September 20 after the company reported earnings that missed expectations the day before. CEO Raj Subramaniam blamed the earnings shortfall on “weak industrial economics” and inflationary pressures, which have led customers to shift to regular delivery services, which typically cost less. Subramaniam also cited a “challenging operating environment” that weighed on operating margins, as Yahoo Finance noted.
Despite broader macroeconomic concerns, open interest in Ether futures rose to 4.66 million ETH on September 19, its highest level since January 2023, signaling strong demand for leveraged positions.
While the recent price increase clearly explains the increased interest in leveraging Ether through futures, this does not necessarily indicate increased positive sentiment from traders. In derivatives markets, every buyer (long) is matched by a seller (short), however the level of demand for leverage varies. This discrepancy can be observed in the prices of ETH monthly futures.
ETH Futures Premiums Steady Despite Rising Open Interest
One might expect that optimism is the driving force behind the surge in demand for Ether futures, but the data does not provide a conclusive view on this.
ETH futures premiums have remained relatively stable at around 6% per annum since August, slightly above the neutral threshold of 5%. Traders typically demand a premium to compensate for the longer settlement times on monthly contracts. During periods of euphoria, this can easily surpass 10%, as it did in late July.
The stability of futures premiums suggests that there is little incentive for traders to engage in a “cash and carry” strategy, which involves selling futures contracts while simultaneously buying spot ETH to collect the premium as a fixed income trade. Therefore, it can be inferred that there is some genuine demand for bearish positions on Ether, as futures premiums have remained stable despite the recent price increase.
The current market conditions are a stark contrast to late May, when ETH surged 28%, pushing futures open interest to 4.44 million ETH, just 5% below current levels. However, on May 31, Ether futures premiums spiked to 14%, typically a sign of excessive leverage demand from bullish traders. This time around, the risk of a cascade of liquidations appears to be much lower, thanks to a more balanced spread of leverage between long and short positions.
Currently, Binance and Bybit lead the Ether futures market with a combined open interest of $11.9 billion, accounting for 30% and 17% of the market share, respectively. This concentration suggests significant demand from retail investors, especially as OKX, Deribit, and the Chicago Mercantile Exchange (CME) together account for 24% of ETH futures open interest. Despite the high open interest, the lack of excessive leverage reduces concerns about increased volatility in the near term.
