The open position in Ethereum futures broke a record at $ 6.5 billion, with ETH rising to $ 1,750 and increasing traders’ leverage. $ 6.5 billion futures open position shows investors are bullish on Ethereum
Ethereum (ETH) price has risen 33% over the past five days, and data show that some buyers started using excessive leverage when this increase occurred.
Although this does not necessarily mean anything negative, it may indicate an expectation of an increase as it is normal to have a higher premium on short-term futures contracts.
Although Ethereum’s upward movement has been going on for a long time, Ethereum has finally broken the $ 1,500 psychological barrier and entered price discovery mode.
There are several key derivative metrics that need to be reviewed to assess whether the market is overly optimistic. One is the futures premium (also known as the basis) measures the price difference between futures contract prices and the regular spot market.
3-month futures should generally be traded at an annual premium of 6% to 20% and this should be interpreted as a lending rate. By delaying the settlement, the sellers demand a higher price, which creates a price difference.
The chart above shows Ethereum futures withdrawals of over 5.5%, which is generally unsustainable. Considering that it is less than 49 days until the end of March 26, this rate is equal to 55% on an annual basis.
A sustainable base of over 20% points to excessive leverage from buyers and creates the potential for massive liquidations and market crashes.
A similar move occurred when Ethereum broke $ 1,400 on January 19, but failed to maintain such a level. This helped trigger subsequent liquidations and Ethereum dropped 27% over the next two days.
A baseline above 20% is not necessarily a pre-breakout warning, but reflects the use of high leverage from futures contractors. This overconfidence from buyers only poses a greater risk if the market drops below $ 1,450.
It is also worth noting that traders sometimes increase their leverage use in the middle of a rally, but buy an underlying asset (Ethereum) to set the risk.
Sellers were not liquidated with a transition to $ 1,750
Those who bet on $ 2,000 Ethereum should be pleased to know that the open position has increased during the last 33% rally. This suggests that short-term sellers are likely to be fully hedged by taking advantage of the futures premium rather than effectively expecting a downside.
The open position in Ethereum futures this week increased 128% month on month to $ 6.5 billion.