One quant explained that a pattern currently forming in Ethereum open interest could suggest that altcoin season will arrive “sooner than expected.”
Altcoin season could be approaching, judging by Ethereum patterns
In a CryptoQuant Quicktake article, the analyst discussed why altcoin season may soon be upon us in the cryptocurrency sector, based on trends occurring in several Ethereum and Bitcoin metrics.
The first metric that is relevant here is “open interest”, which tracks the total value of derivative positions related to a particular asset that are currently open across all central exchanges.
An increase in the value of this indicator means that speculators are currently opening new positions in the coin, while a drop in the value means that users are either closing positions of their own volition or are being forcibly liquidated by the platform.
Below is a chart comparing the trends in Bitcoin and Ethereum open interest over the past year.
As shown in the chart above, Bitcoin’s open interest has remained roughly flat recently, while at the same time Ethereum’s metrics have recorded growth.
This suggests that ETH has recently seen more demand for derivatives market contracts than the original cryptocurrency, and one of the driving forces behind this could be the news cycle surrounding the approval of a spot exchange-traded fund (ETF) for the asset.
On the same chart, the quant also attaches data on another metric, the Estimated Leverage Ratio (ELR), which measures the ratio of open interest in any asset to exchange reserves, the latter of course being the total amount of coins currently in all central exchange wallets.
The ELR essentially provides information about the amount of leverage that the average user in the derivatives market is currently opting for. From the chart, we can see that this ratio has recently spiked in Ethereum, while it has plateaued in Bitcoin.
So not only has ETH attracted more speculative interest than BTC recently, but users opening contracts are also taking on more risk due to the higher leverage.
Analysts believe that the fact that Ethereum has overtaken Bitcoin on these metrics could be a potential sign that altcoin season may soon be upon us.
“If Ethereum price continues to stabilize within the current range, it is very likely that altcoin season will begin sooner than expected,” the quant noted. Given this shift in trend, it remains to be seen how things will unfold on the market in the near future.
ETH Price
Ethereum has been back on track in recent days, with its price rising above the $3,900 level after previously seeing a slowdown.
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com
