Author: Marcel Pechman, CoinTelegraph; Translated by: Bai Shui, Jinse Finance
Between November 20 and 27, ETH surged by 15%, approaching the $3,500 mark for the first time in four months. This rally coincided with Ethereum futures open contracts hitting an all-time high, raising questions among traders: does the increase in leverage indicate excessive bullish sentiment?
Total Open Volume of Ethereum Futures, ETH. Source: CoinGlass
In the 30 days ending November 27, the total open contracts for Ethereum futures surged by 23%, reaching $22 billion. In comparison, on August 27 three months ago, Bitcoin futures had open contracts totaling $31.2 billion. Additionally, when ETH traded above $4,000 on May 13, the open contracts for ETH futures were $14 billion.
Dominating the market are Binance, Bybit, and OKX, which together account for 60% of ETH futures demand. However, the Chicago Mercantile Exchange (CME) is steadily expanding its footprint. Notably, CME currently holds $2.5 billion in open ETH futures contracts, indicating increasing institutional participation—a development typically seen as a sign of market maturity.
Whether institutional or retail investors, 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 exploit various scenarios, including price declines.
For instance, a cash arbitrage strategy involves buying Ethereum in the spot (or margin) market while selling the same nominal amount in Ethereum futures. Similarly, traders can exploit interest rate differentials 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 for two-month ETH futures (benchmark rate) 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 moderate bullish sentiment in the market.
Due to retail investors, ETH liquidations may increase.
In a high-leverage environment, the biggest risk often comes from retail traders, commonly referred to as 'degens', who frequently use leverage of up to 20 times. In this case, a standard daily price drop of 5% can wipe out all margin deposits, triggering liquidations. Between November 23 and 26, $163 million in leveraged long ETH futures positions were forcibly liquidated.
To measure the health of Ethereum retail futures positions, perpetual contracts are a key indicator. Unlike monthly contracts, perpetual contracts closely reflect the ETH spot price. They use variable funding rates—usually between 0.5% and 2.1% monthly—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 of 2.1% per month. Although it briefly surged above 4% on November 25, it did not sustain. This indicates that even with a 15% weekly increase in Ethereum prices, 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 outright bullish sentiment.
