Data shows that metrics related to ethereum derivatives have spiked recently, a sign that the price is at risk of going through a volatile storm.
ethereum Open Interest and Leverage Ratio Have Soared Recently
In a quick shot from CryptoQuant <a target="_blank" href="https://cryptoquant.com/insights/quicktake/673dbdde114d3c55e68816f0-ethereum-Derivatives-Market-Signals-Unstoppable-Bullish-Momentum” target=”_blank” rel=”noopener nofollow”>mailAn analyst talked about the trend of ethereum derivatives indicators. The metrics in question are open interest and estimated leverage ratio.
First, Open Interest tracks the total number of eth-related contracts that are currently open across all derivatives platforms. Naturally, the metric takes into account both long and short positions.
When the value of this metric increases, it means that investors are opening new positions in the market. This trend suggests that derivatives trading interest in the currency is increasing.
On the other hand, the indicator that registers a fall implies that positions in the market are falling. This could be because investors intentionally closed them or because exchanges forcibly liquidated them.
Now, here is a chart showing the trend of ethereum open interest over the past few years:
<img data-recalc-dims="1" decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/11/Ethereum-a-time-bomb-Derivatives-metrics-break-records.png" alt="ethereum Open Interest” width=”1280″ height=”720″/>
The value of the metric appears to have been shooting up in recent days | Source:<a target="_blank" href="https://cryptoquant.com/insights/quicktake/673dbdde114d3c55e68816f0-ethereum-Derivatives-Market-Signals-Unstoppable-Bullish-Momentum" target="_blank" rel="noopener nofollow"> CryptoQuant
The chart above shows that ethereum open interest has seen rapid growth recently. It has surpassed the previous all-time high (ATH) to set a new record above $13 billion.
Considering the period of the last four months, the indicator has increased by more than 40%, suggesting that there has been an explosion in speculative interest around the cryptocurrency.
However, this development may not be the healthiest, as the trend of the second relevant indicator, the estimated leverage ratio, would suggest. This metric measures the relationship between open interest and derivatives exchange reserve.
The Derivatives Exchange Reserve is, naturally, just the total amount of the cryptocurrency held in the wallets associated with all centralized derivatives exchanges.
The estimated leverage ratio tells us the amount of leverage or borrowing that the average derivatives user in the ethereum market is currently opting for.
Below is a chart for this indicator.
<img data-recalc-dims="1" loading="lazy" decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/11/1732212609_605_Ethereum-a-time-bomb-Derivatives-metrics-break-records.png" alt="ethereum Estimated Leverage Ratio” width=”1280″ height=”720″/>
Looks like the value of the metric has been heading up over the last few weeks | Source: <a target="_blank" href="https://cryptoquant.com/insights/quicktake/673dbdde114d3c55e68816f0-ethereum-Derivatives-Market-Signals-Unstoppable-Bullish-Momentum" target="_blank" rel="noopener nofollow">CryptoQuant
It is clear from the chart that ethereum's estimated leverage ratio has recently skyrocketed. This would mean that the increase in Open Interest has been faster than the increase in the Derivatives Exchange Reserve.
Investors are now at an all-time high leverage (ATH), which may be a bad sign for eth as it implies that any volatility in the future could wipe out overleveraged positions and induce a massive liquidation event called a squeeze.
The quant has noted that ethereum's funding rate, a ratio of long to short positions, is positive at the moment, suggesting that if a short squeeze occurs soon, it is more likely to involve the bullish side of the market.
eth Price
At the time of writing, ethereum is trading around $3,000, down almost 7% from last week.
x/uPYxE1Th/” alt=”ethereum price chart” width=”1486″ height=”889″/>
The price of the coin seems to have been consolidating sideways recently | Source: ETHUSDT on TradingView
Dall-E Featured Image, CryptoQuant.com, TradingView.com Chart
