Today, let's talk about Ethereum's short-term price trend. ETH's gains this year have significantly lagged behind Bitcoin's. However, in recent weeks, there has finally been a strong rebound. So, will Ethereum's short-term trend be up or down? We can see some clues from the derivatives market for Ethereum.
First, the open interest in Ethereum futures has been rising recently, and last Friday, it surged by more than 12%, creating a historic high of $20.8 billion. The open interest in futures refers to the total number of outstanding contracts in the derivatives market. Currently, this metric for Ethereum has reached unprecedented levels. Looking at this chart, typically, higher open interest indicates a more bullish sentiment towards Ethereum's price. Why do we know that everyone is leaning towards bullish rather than bearish? It's simple: the funding rate for its futures is positive, and over the past week, this funding rate has surged multiple times, reaching a historical peak of around 0.0374%. This also serves as evidence of heightened bullish sentiment.
Second, the estimated leverage ratio for Ethereum, which is the ratio of open interest to the reserves held by exchanges, is also rising quickly, climbing to a new record of 0.4. This indicates that traders are increasing their risk exposure by using higher leverage to amplify potential returns. Ultimately, the high leverage and long dominance may lead to what problem for Ethereum? That is, volatility should increase, with potential risks in both directions: one is the increased risk of a long squeeze, where short-term price fluctuations could trigger liquidations of these longs, leading to a significant price correction for Ethereum.
However, because we are currently in a bull market, I feel that a short squeeze could also occur first. This is because there are still a large number of leveraged positions in the micro Ethereum futures, for example, the short positions of hedge funds, and more long positions being added could squeeze these shorts.
Especially when looking at large cash-settled futures, the open interest in contracts over the past two weeks recorded the second-largest weekly increase in history. This phenomenon further reinforces the market's long-short confrontation pattern.
In summary, from the perspective of the derivatives market, it seems that the potential for market volatility in Ethereum is intensifying. We may soon see it soar to new highs this year, just like Bitcoin, which would also be a historical high. However, if the trend reverses, the extent of its decline could also be particularly high. Everyone, please pay attention to the risks. How do you all view the short-term trend of Ethereum?
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