Emily Walker
Recent data indicates a significant rise in Ethereum derivatives metrics, suggesting the cryptocurrency may be on the verge of experiencing high volatility.
Spikes in Ethereum Open Interest and Leverage Ratio
An analyst highlighted the increasing trends in Ethereum’s derivatives metrics, specifically focusing on Open Interest and Estimated Leverage Ratio, in a CryptoQuant Quicktake.
The Open Interest metric tracks the total number of Ethereum-related contracts that are currently active across all derivatives platforms, encompassing both long and short positions.
A rising Open Interest typically indicates that investors are initiating new positions, reflecting an increased trading interest in Ethereum. Conversely, a decreasing value can signify that investors are either voluntarily closing positions or facing forced liquidations by exchanges.
The following chart illustrates the trend of Ethereum Open Interest over recent years:
The chart reveals a sharp increase in Ethereum’s Open Interest, which has reached a new peak exceeding $13 billion. Over the past four months, this metric has risen by more than 40%, indicating a surge in speculative interest in the cryptocurrency.
However, the implications of this growth may not be entirely positive, as indicated by the second key metric, the Estimated Leverage Ratio. This ratio compares Open Interest to the total cryptocurrency amount stored in wallets associated with centralized derivatives exchanges.
The Estimated Leverage Ratio reflects the level of borrowing or leveraging utilized by the average Ethereum derivatives trader.
Here’s a chart depicting this specific metric:
This graph shows a notable rise in the Estimated Leverage Ratio, signifying that the increase in Open Interest has outpaced growth in the Derivatives Exchange Reserve. Investors are currently operating at an all-time high leverage level, which can be concerning as it suggests that any future price volatility may trigger mass liquidations, known as a squeeze.
The analyst also noted that the current Ethereum Funding Rate, which measures the balance between long and short positions, is positive. This suggests that if a squeeze occurs soon, it is more likely to affect the bullish positions.
Current ETH Price
As of now, Ethereum’s price is hovering around $3,000, which marks a decline of nearly 7% over the past week.