Author: Marcel Pechman Source: Cointelegraph Translator: Shan Ouba, Jinse Finance
Between October 14 and 15, ETH rose 8.8%, but the $2,650 resistance level proved more challenging than expected. Traders are increasingly concerned that the all-time high in ETH futures open interest on October 16 may be a warning signal.
Surging demand for leveraged ETH positions often precedes a significant price pullback. On October 15, the total addressable ETH futures market exceeded 5 million ETH for the first time, up 12% from four weeks earlier.
ETH futures open interest since 2020. Source: CoinGlass
On August 2, when Ether's total open interest last peaked, ETH's price plummeted 31.7% in less than four days, from $3,205 to $2,186. Will history repeat itself?
Increased ETH futures demand does not necessarily mean bearish
Increased ETH futures demand does not necessarily mean bearish, so the key insight that can be drawn from this data is whether the leverage across the system is expanding or contracting. The greater the bet, the more likely sudden price swings due to forced liquidations.
While the derivatives market may appear to be a zero-sum game, its impact on spot prices is quite significant. This is primarily because futures contracts, due to their leverage, often have much larger trading volumes. Additionally, whales and market makers rely on derivatives to hedge risks quickly, a process that is almost impossible to achieve in the spot market due to its lower liquidity.
When the futures market experiences $50 million or more in forced liquidations, arbitrage desks will immediately reduce risk in the spot market. This action further accelerates price movements - whether up or down - creating a phenomenon known as "cascading liquidations." This is why traders monitor open interest to identify the risk of unexpected price swings due to over-leveraging.
On August 2, open interest reached a peak of 4.75 million ETH, up 15% from four weeks earlier. Fundamentally, the current market conditions are very similar to the structure in August. A total of $279 million in leveraged long positions were forcibly liquidated - a figure that does not include traders who used stop-loss orders or voluntarily closed positions during this period.
ETH/USD 24-hour price. Source: TradingView
Other examples include April 1, when open interest surpassed 4 million ETH, rising 21% in four weeks. At the time, ETH's price started at $3,648 and ultimately bottomed at $2,604 on April 13, a 24% decline in 12 days. Therefore, there is sufficient historical evidence that peaks in ETH's open interest typically precede significant price pullbacks.
Bitcoin and broader market trends may set the tone for ETH price
While post-analysis can more easily identify local peaks in the ETH open interest chart, it is impossible to predict whether this number will continue to grow and exceed 5.1 million ETH. Such peaks have recently occurred when the broader cryptocurrency market has been consolidating or experiencing short-term adjustments, adding another layer of complexity to the analysis.
Assuming a neutral overall trend in the cryptocurrency market, a 20% to 25% crash in ETH's price to around $1,960 is entirely plausible, and traders should be prepared for this scenario. On the other hand, if Bitcoin ultimately breaks above the $70,000 resistance, increased leverage usage in ETH could benefit the bullish momentum, potentially leading to price appreciation.
