The open interest of Ethereum (ETH) Futures has risen to a record level, while the price itself remains under pressure. This conflicting development causes uncertainty among investors. The question is: points the rising open interest to a upcoming price rally, or is it a warning for further weakness?
Futures market at record level without price recovery
On March 21, the Open Interest of ETH-Futures reached 10.23 million ETH-an increase of 15% in just two weeks. Many positions have been opened especially on platforms such as Binance, Gate.io and Bitget.
An increase in open interest generally indicates higher trading activity, but that does not automatically mean that market sentiment is positive. After all, lung and short positions keep each other in balance. To better explain the investor sentiment, analysts look at the premium on monthly futures. This premium recently fell below 4% on an annual basis – a sign that traders are becoming more careful.
Restraint due to macro-economic care
The reluctance among investors stems from several factors. For example, there are concerns about inflation and absent interest rates in the US worldwide. At the same time, income from the Ethereum network decreased considerably. In the week until March 17, only $ 605,000 in revenues were generated – a significant decrease compared to the $ 2.5 million from two weeks earlier.
American Ethereum ETFs also show weakness. Between 6 and 20 March, $ 307 million was withdrawn from capital. This outflow puts extra pressure on the ETH race.
Unbalanced economic incentives within Ethereum
A structural problem within Ethereum is the lack of financial incentives for validators. Despite the switch to proof-of-stake and the addition of blob space for rollups, the yields for network participants are too low to keep them satisfied. “The system is out of balance,” said Gnosis co-founder Martin Köppelmann.
Although the open interest is at a record high, the low futures premium indicates a lack of optimism. In combination with the falling network activity and uncertain macro-economic prospects, the market remains careful. For the time being there is no conviction for an upward breakthrough.
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Source: https://newsbit.nl/ethereum-futures-op-recordhoogte-komt-er-een-prijsrally-of-dreigt-juist-een-daling/
