30s Summary

Ether’s value has risen 15% to about $3,500 in the week of November 20-27, while interest in Ether futures has grown 23% over the last month, reaching $22 billion. The increase doesn’t necessarily mean the price will continue to rise as traders utilise various strategies, but a steady 17% annualized premium for two-month Ether futures points to some optimism about Ether’s future. However, the potential risk is high, especially for retail traders using high leverage, with some $163 million in leveraged long Ether futures positions recently liquidated. The rise in Ether open interest may reflect more institutional strategic play than bullish sentiment.

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From November 20 to November 27, Ether (ETH) had a great week; its value jumped 15% to nearly $3,500, a price we haven’t seen in four months. This happened alongside a record-high interest in Ether futures, causing some to wonder if this means people are overly optimistic about Ether’s price.

Interest in Ether futures grew by 23% in the month leading up to November 27, reaching a whopping $22 billion. To put that into perspective, three months ago, in August, the interest in Bitcoin futures was at $31.2 billion. The demand for Ether futures seems to be increasing, with Binance, Bybit, and OKX leading the charge, accounting for 60% of the demand. The Chicago Mercantile Exchange (CME), however, is slowly making gains, with $2.5 billion in Ether futures, showing a rise in institutional involvement.

High demand doesn’t necessarily mean everyone thinks the price will keep going up. In the world of derivatives, buyers and sellers can make money in many ways and from many situations. For instance, by buying Ether in the cash market and selling the same amount in Ether futures, traders can use the ‘cash and carry’ strategy. They could also buy and sell contracts expiring at different times to take advantage of changing rates. These strategies aren’t about betting on the price going up, but they do contribute to the demand for Ether.

In the last week, the annualized premium for two-month Ether futures has held steady at 17%, past the neutral threshold of 10%. This premium allows traders to get a fixed return while hedging their exposure with the cash and carry strategy. It’s also worth noting that some people are willing to pay a 17% cost to keep their leveraged long positions, suggesting they’re optimistic about Ether’s prospects.

But with high leverage comes high risk, often from retail traders, sometimes referred to as ‘degens’. They’ll often use leverage of up to 20x, so a mere 5% drop in price can completely wipe out their margin deposit, causing forced sell-offs. Between November 23 and November 26, $163 million in leveraged long Ether futures positions were liquidated.

Perpetual contracts are a good way to get a sense of how healthy the retail futures positions for Ether are. Unlike monthly contracts, perpetuals closely follow the Ether spot price, using a variable rate to balance leverage between those betting long and those betting short.

Right now, the Ether perpetual futures funding rate is sitting pretty at 2.1% per month, which is neutral. Even though we saw a short-lived spike to above 4% on November 25, it didn’t stick around. This shows that retail demand for leveraged longs is still pretty chill despite the 15% increase in Ether’s price this past week.

Considering all of this, it’s likely that the rise in Ether open interest reflects more of a strategic play by institutions rather than an overall bullish sentiment.