Author: Marcel Pechman, CoinTelegraph; Compiled by Bai Shui, Jinse Finance
From November 20 to 27, ETH soared 15%, approaching the $3,500 mark for the first time in four months. This surge coincides with a record high in ETH futures open interest, raising questions among traders: Does the increase in leverage indicate excessive bullish sentiment?
Total open interest in ETH futures, ETH. Source: CoinGlass
In the 30 days ending November 27, the total open interest in ETH futures increased by 23% to $22 billion. In comparison, the open interest in Bitcoin futures was $31.2 billion on August 27, three months ago. Additionally, when ETH traded above $4,000 on May 13, the open interest in ETH futures was $14 billion.
The market is dominated by Binance, Bybit, and OKX, which collectively 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 ETH futures open interest, indicating increasing institutional participation, which is often seen as a sign of market maturity.
The high demand for leverage, whether from institutional or retail investors, does not necessarily reflect a bullish sentiment. The derivatives market maintains a balance between buyers and sellers, creating opportunities to utilize various strategies, including those that benefit from price declines.
For example, a cash-and-carry strategy involves buying Ethereum in the spot (or margin) market while simultaneously selling the same notional amount in the Ethereum futures market. Similarly, traders can take advantage of interest rate differentials by selling longer-dated contracts (e.g., March 2025) while buying shorter-dated contracts (e.g., December 2024). These strategies do not reflect a bullish sentiment but can significantly increase the demand for Ethereum leverage.
2-month ETH futures annualized premium. Source: Laevitas.ch
On November 6, the 2-month ETH futures annualized premium (basis rate) exceeded the 10% neutral threshold and has remained at a robust 17% level over the past week. This rate allows traders to earn a fixed return while fully hedging their risk exposure through cash-and-carry strategies. However, it is worth noting that some market participants have accepted the 17% cost to maintain leveraged long positions, indicating a moderate bullish sentiment in the market.
ETH Liquidations May Increase Due to Retail Investors
In a high-leverage environment, the greatest risk often comes from retail traders, known as "degens," who frequently use leverage as high as 20x. In such cases, a standard 5% daily price decline can wipe out the entire margin deposit, triggering liquidations. Between November 23 and 26, $163 million in leveraged long ETH futures positions were forcibly liquidated.
To gauge the health of Ethereum retail futures positions, the perpetual contract is a key indicator. Unlike monthly contracts, perpetual contracts closely track the ETH spot price. They employ a variable funding rate, typically between 0.5% and 2.1% per month, to balance the leverage between longs and shorts.
8-hour ETH perpetual futures funding rate. Source: Laevitas.ch
Currently, the Ethereum perpetual futures funding rate is near the neutral threshold of 2.1% per month. Although it briefly spiked above 4% on November 25, it did not persist. This suggests that even as ETH prices rise 15% weekly, the demand for leveraged long positions from retail traders remains subdued.
These dynamics reinforce that the rise in Ethereum's open interest reflects institutional strategies, such as hedging or neutral positions, rather than a purely bullish sentiment.
