{"id":6359,"date":"2021-02-06T01:29:51","date_gmt":"2021-02-06T01:29:51","guid":{"rendered":"https:\/\/cointelegraph.com\/news\/record-6-5b-futures-open-interest-signals-traders-are-bullish-on-ethereum"},"modified":"2021-02-06T01:29:51","modified_gmt":"2021-02-06T01:29:51","slug":"record-6-5b-futures-open-interest-signals-traders-are-bullish-on-ethereum","status":"publish","type":"post","link":"https:\/\/www.buyucoin.com\/crypto-labs\/record-6-5b-futures-open-interest-signals-traders-are-bullish-on-ethereum\/","title":{"rendered":"Record $6.5B futures open interest signals traders are bullish on Ethereum"},"content":{"rendered":"

Ether (ETH<\/a>) price has rallied by 33% over the last five days and data shows that as this occurred some buyers began to use excessive leverage. <\/p>\n

Although this is not necessarily negative, it should be considered a yellow flag as a higher premium on futures contracts for short periods is normal.<\/p>\n

ETH\/USD 4-hour chart. Source: TradingView<\/em><\/figcaption><\/figure>\n

Although Ether\u2019s upward movement has been going for an extended period, it was only in February that Ether finally broke the $1,500 psychological barrier and entered price discovery mode.<\/p>\n

To assess whether the market is overly optimistic, there are a few essential derivatives metrics to review. One is the futures premium (also known as basis), and it measures the price gap between futures contract prices and the regular spot market.<\/p>\n

The 3-month futures should usually trade with a 6% to 20% annualized premium, which should be interpreted as a lending rate. By postponing settlement, sellers demand a higher price and this creates a price difference.<\/p>\n

ETH Mar. 26 futures premium. Source: <\/em>NYDIG-Digital Assets Data<\/em><\/a><\/figcaption><\/figure>\n

The above chart shows the Ether futures premium shooting above 5.5%, which is usually unsustainable. Considering there’s less than 49 days to the Mar. 26 expiry this rate is equivalent to a 55% annualized basis.<\/p>\n

A sustainable basis above 20% signals excessive leverage from buyers and creating the potential for massive liquidations and market crashes.<\/p>\n

A similar movement happened on Jan. 19 as Ether broke $1,400 but failed to sustain such a level. That situation helped trigger the liquidations that followed and Ether plunged 27% over the next two days.<\/p>\n

A basis level above 20% is not necessarily a pre-crash alert but it reflects high levels of leverage usage from futures contract buyers. This overconfidence from buyers only poses a greater risk if the market recedes below $1,450. That was the price level when the indicator broke 30% and reached alarming levels.<\/p>\n

It is also worth noting that traders sometimes pump up their use of leverage in the midst of a rally but also purchase the underlying asset (Ether) to adjust the risk.<\/p>\n

Sellers were not liquidated by the move to $1,750<\/h2>\n

Those betting on $2,000 Ether should be pleased to know that open interest has been increasing all throughout the recent 33% rally. This situation indicates short-sellers are likely fully hedged, taking benefit of the futures premium, instead of effectively expecting a downside.<\/p>\n

ETH futures aggregate open interest in USD terms. Source: Bybt.com<\/em><\/figcaption><\/figure>\n

This week the open interest on Ether futures reached a record $6.5 billion, which is a 128% monthly increase.<\/p>\n

Professional investors using the strategy described above are essentially doing cash and carry trades which consist of buying the underlying asset and simultaneously selling futures contracts. <\/p>\n

These arbitrage positions usually do not present liquidation risks. Therefore, the current surge in open interest during a strong rally is a positive indicator.<\/p>\n

The views and opinions expressed here are solely those of the <\/em>autho<\/em>r<\/em><\/a> and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.<\/em><\/p>\n

Source: COINTELEGRAPH<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Ether (ETH) price has rallied by 33% over the last five days and data shows that as this occurred some buyers began to use excessive leverage.  Although this is not necessarily negative, it should be considered a yellow flag as a higher premium on futures contracts for short periods is normal. ETH\/USD 4-hour chart. Source:…<\/p>\n","protected":false},"author":1,"featured_media":6360,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[441,521,525,522,523,524,443],"class_list":["post-6359","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-daily-crypto-news","tag-cryptocurrencies","tag-cryptocurrency-exchange","tag-derivatives","tag-ether-price","tag-ethereum-options","tag-futures","tag-markets"],"_links":{"self":[{"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/posts\/6359"}],"collection":[{"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/comments?post=6359"}],"version-history":[{"count":0,"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/posts\/6359\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/media\/6360"}],"wp:attachment":[{"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/media?parent=6359"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/categories?post=6359"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.buyucoin.com\/crypto-labs\/wp-json\/wp\/v2\/tags?post=6359"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}