Data shows that Ethereum open interest has recently been trading at relatively low levels. Here's what this means for the asset's price:
Ethereum’s open interest has remained flat since the plunge.
As explained by analysts in the CryptoQuant Quicktake post, ETH open interest has recently followed a similar trajectory to the cryptocurrency's price. “Open interest” here refers to the total number of derivatives-related contracts open against Ethereum across all exchanges.
An increase in the value of this indicator means that investors are currently opening new positions on these platforms. Generally, this type of trend leads to an increase in the total leverage of the market, which can increase the volatility of asset prices.
On the other hand, a decline in the index means that investors are either exiting their positions of their own volition or are being liquidated forcibly by the platform. Such drawdowns can be accompanied by wild price fluctuations, but once the decline ends, the market can become more stable as leverage decreases.
Here is a chart showing the trend in Ethereum open interest over the past few months.
The value of the metric appears to have witnessed a sharp plunge recently | Source: CryptoQuant
As shown in the graph above, Ethereum open interest has previously recorded a sharp decline along with asset prices. The plunge in the index was, of course, caused by long-term contract holders being washed out by falling prices.
Since the price has remained roughly flat since the drop, so has the value of open interest. Quant notes are
This coincidence suggests that futures market activity is subduing. As a result, the market appears ready for either long or short positions to be revived, potentially starting a new and decisive market move in either direction.
Another indicator related to the derivatives market that may be related to Ethereum's future price movement is the funding rate. This metric tracks the periodic fees that derivative contract holders currently pay to each other.
A positive funding rate means that long holders are paying a premium to short holders to hold their positions. Therefore, that bullish sentiment prevails. Similarly, negative values indicate that the majority of derivatives traders share bearish sentiments.
The chart below shows that Ethereum's funding rate has turned red recently.
The data for the ETH funding rates over the last few months | Source: CoinGlass
Historically, markets have been more likely to move against majority opinion, so the fact that funding rates have turned negative could be a good sign that a potential uptrend could be starting. There is a gender.
ETH price
Ethereum has been gradually rising over the past few days, with the price currently reaching $3,200.
Looks like the value of the coin has gone up a bit over the past few days | Source: ETHUSD on TradingView
Featured image of Kanchanara on Unsplash.com, CoinGlass.com, CryptoQuant.com, Charts on TradingView.com
