Data shows that Ethereum Open Interest has been trading at relatively low levels recently. Here's what that could mean for the asset's price.
Ethereum open interest has moved sideways since its fall
As an analyst explains in a CryptoQuant Quicktake job, ETH Open Interest has recently followed a similar trajectory to the cryptocurrency price. “Open Interest” here refers to the total number of derivatives contracts open for Ethereum across all exchanges.
When the value of this measure increases, it means that investors are currently opening new positions on these platforms. Typically, this type of trend leads to an increase in total market leverage, so asset prices could become more volatile.
On the other hand, a decline in the indicator implies that investors close their positions of their own accord or are forcibly liquidated by their platform. Such a decline may accompany violent price action, but once the decline ends, the market may become more stable due to reduced leverage.
Now here is a chart that shows the trend of Ethereum Open Interest over the past few months:
The value of the metric appears to have witnessed a sharp plunge recently | Source: CryptoQuant
As seen in the chart above, Ethereum Open Interest saw a sharp decline earlier along with the asset's price. The fall in the indicator was naturally caused by the fact that long contract holders were eliminated when prices fell.
As the price has largely consolidated sideways since the decline, the value of Open Interest has also increased. Quantitative notes,
This alignment suggests a slowdown in activity in the futures market. Therefore, the market appears poised for the resurgence of long or short positions, potentially initiating a new decisive move in either direction.
Another indicator related to the derivatives market that could be relevant to the future price action of Ethereum is the funding rate. This metric tracks the periodic fees that derivative contract holders currently pay themselves.
Positive funding rates imply that long position holders pay a premium to short position holders to maintain their positions; therefore, this bullish sentiment is dominant. Likewise, negative values suggest that a bearish sentiment is shared by the majority of derivatives traders.
The chart below shows that Ethereum's funding rate has recently turned red.
The data for the ETH funding rates over the last few months | Source: CoinGlass
Historically, the market has been more likely to move against majority opinion, so the fact that the funding rate has gone negative may be a good sign for the chances of a possible start of a upward trend.
ETH Price
Ethereum has gradually increased in recent days, as its price now reaches $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 by Kanchanara on Unsplash.com, CoinGlass.com, CryptoQuant.com, chart from TradingView.com
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