Ether (ETH) prices fell 6% between March 19th and March 21st, after failing to break the $2,050 resistance level. In particular, ETH has fallen 28% since February 21, with performance in the broader crypto market declining by 14% over the same period.
Despite ETH’s price struggle, open interest on Ether futures reached a record high on March 21st. This has led traders to question whether large investors are positioning for potential gatherings towards $2,400, and also raise concerns about the risks of cascade liquidation due to increased leverage.
Ether futures tallies open interest. Source: Coinglass
Overall interest in ether futures rose 15% in two weeks, reaching a record ETH 10.23 million on March 21st. Binance, Gate.io, and Bitget collectively control 51% of CME, according to Coinglass data. This contrasts with Bitcoin futures, where CME leads with a market share of 24%.
Demand for leveraged ETH longs has declined
Increased activity in ETH futures contracts usually indicates institutional investors’ benefits. However, as buyers (long) and sellers (shorts) are always in line with each other, an increase in open interest does not show an inherently positive outlook.
To measure whether buyers are looking for more leverage, analysts need to compare the monthly contract price of ETH futures with the spot exchange rate. In the neutral market, these derivatives typically rise from 5% to 10% on an annual basis, as they account for extended settlement periods. If traders become bearish, this premium could fall below that range.
Ether Futures 2-month annual insurance premium. Source: Laevitas
ETH Monthly Futures’ annual premiums fell below 4% on March 21st, down from 5% two weeks ago. This reduction in futures premiums suggests a reduction in incentives for traders to use “cash and carry” strategies. This includes selling futures contracts and purchasing spot ETH to acquire premiums as a fixed income trade.
Spot ETF spills and network fee reduction pressure ETH prices
Part of the ether decline comes from weak demand for US-based ether exchange trade funds (ETFs), which saw a net spill of $307 million over the two weeks that ends March 20. The macroeconomic environment has undermined investors’ confidence as economists warn about the global Tarif war, inflation pressures and the increased risk of a recession due to reduced US government spending.
However, some analysts argue that the recent weakness in price for ether is attributable to the imbalance between the network fees required to compensate for the variators and the benefits of distributed applications (DAPPS) and layer 2 scaling solutions. This critique was fully summarized by Gnosis co-founder Martin Köppelmann.
Source: Koeppelmann
In a sense, the success of Ethereum’s transition to fiscal proof is greatly improved, and the implementation of blobspaces to enhance scalability through rollups is considered a factor limiting ether prices. Despite the low trading costs of Layer 2 solutions, some ETH investors believe they are not being properly rewarded.
Ether prices face pressure from rising macroeconomic risks, but demand for DAPP continues to decline. Ethereum’s seven-day base tier revenue fell to $605,000 on March 17th, a sharp decline from $2.5 million just two weeks ago.
There is no indication that the surge in open interest in ETH futures will be driven by a bullish position. On the contrary, the demand for long positions utilised remains prominent, suggesting careful market sentiment.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
