Ether (ETH) surges 15%, raising questions about market sentiment

Ether (ETH) rose 15% between November 20 and November 27, reaching $3,500 for the first time in four months. This rise coincided with a record-high Ether futures open interest, prompting traders to wonder if the increased leverage indicates too positive mood.

Rising Ethereum Futures Open Interest

The aggregate open interest in Ether futures increased 23% in the 30 days leading up to November 27, reaching $22 billion. For reference, on May 13, Ether traded above $4,000, with ETH futures open interest of $14 billion. Binance, Bybit, and OKX dominate this sector, accounting for 60% of the demand. Meanwhile, the Chicago Mercantile Exchange (CME) has expanded its footprint, with $2.5 billion in ETH futures open interest, indicating increased institutional involvement—a indication of market maturity.

Leverage demand doesn’t always mean bullishness
The high demand for Ether leverage reflects a variety of trading techniques, rather than a general positive sentiment. For example, the cash and carry strategy is purchasing Ether in the spot market and selling an equal amount in futures, taking advantage of rate differentials without directional market exposure. Similarly, traders can take advantage of disparities between longer-dated and shorter-term contracts, raising leverage demand.

Premiums indicate moderate bullishness.
On November 6, the two-month ETH futures annualized premium surpassed the neutral 10% mark and has remained robust at 17%, indicating that traders are ready to incur fees to maintain leveraged long holdings. While this suggests some positive optimism, it is tempered by larger market trends.

Retail Leverage: Risks and Liquidations

Retail investors, who frequently use leverage up to 20x, remain vulnerable in highly leveraged circumstances. From November 23 to November 26, $163 million in leveraged long ETH futures positions were liquidated. Perpetual futures financing rates, which reflect retail trading sentiment, have remained around neutral at 2.1% each month, despite a brief jump above 4% on November 25. This dampened retail demand is consistent with institutional techniques that dominate open interest.

The recent increase in Ether futures open interest and premiums appears to be driven by institutional techniques such as hedging, rather than unabashed bullishness. Retail demand for leveraged longs remains muted, pointing to a more balanced market view despite ETH’s recent price increase.