Ethereum Open Interest Plummets to Lowest Level in Three Years: Implications for ETH
Market analysts suggest that Ethereum's dropping open interest combined with declining futures funding rates may create conditions for a major short squeeze targeting bearish leveraged traders and potentially drive prices toward $2,500.
On Friday, Ether (ETH) climbed back above the $2,000 threshold, with additional upward momentum following the release of a US Consumer Price Index (CPI) reading that proved milder than market forecasts.
This rebound positioned the ETH/USD trading pair toward its initial positive weekly candle closure since the middle of January, sparking conjecture about a potential advance to the $2,500 mark.
Key takeaways:
- Open interest in Ether futures declined by 80 million ETH over a 30-day period, while funding rates dropped to their lowest levels in three years, suggesting a diminishing bearish momentum.
- The ETH price has formed robust support near the $2,000 threshold, a critical level that needs to be maintained for the recovery to continue.
Ethereum Futures Open Interest Drops by 80 Million ETH
According to data from CryptoQuant, the open interest (OI) for Ether futures throughout all prominent exchanges has decreased by more than 80 million ETH during the previous 30-day span.
The world's largest cryptocurrency exchange measured by trading volume, Binance, experienced the most substantial reduction of approximately 40 million ETH (50%) throughout the preceding 30 days.
On Gate exchange, Ether's OI decreased by over 20 million ETH (25%), whereas Bybit and OKX witnessed reductions of 8.5 million ETH and 6.8 million ETH, in that order. Combined, these four leading platforms experienced an aggregate decrease of roughly 75 million ETH, with other platforms representing the balance of five million ETH, verifying that this trend is pervasive and not restricted to any individual exchange.
According to CryptoQuant analyst Arab Chain in a Quicktake analysis, this indicates that leveraged traders are "reducing their exposure rather than opening new positions."
According to the analyst, this substantial decrease in OI during a period of declining prices can be "viewed as a clean-up of weaker positions, thereby reducing the likelihood of sharp forced liquidations later on," further stating:
"This environment may pave the way for a period of relative stability or the formation of a more solid price base for Ethereum in the near future."
On Binance, funding rates for Ether futures have descended significantly into negative territory, reaching -0.006, which represents the most depressed level observed since the beginning of December 2022.
CryptoQuant contributor CryptoOnchain explained in a Thursday Quicktake analysis that "It indicates that the bearish sentiment has reached an extreme peak not seen in the last three years."
Throughout history, severely negative funding rates observed at significant price support zones frequently signal an impending short squeeze.
According to the analyst, "When the crowd is this convinced that prices will fall further, the market tends to move in the opposite direction to liquidate late bears," further noting:
"Current data suggests we may be witnessing a classic capitulation event, mirroring the bottom formation of late 2022, potentially setting the stage for a sharp recovery."
According to previous reporting by Cointelegraph, the increasing network activity on Ethereum combined with growing institutional investor inflows represent substantial positive catalysts for potential short-term price appreciation in ETH.
Technical Analysis for ETH Price: Bulls Need to Maintain Support Above $2,000
On the four-hour chart, the ETH/USD pair successfully breached a falling wedge pattern, with trading occurring at $2,050 as of the time of this writing.
The projected target for the falling wedge, determined by adding the maximum height of the wedge to the breakout point located at $1,950, stands at $2,150.
Beyond this level, the price could advance to challenge the 100-period simple moving average (SMA) positioned at $2,260 and subsequently progress toward $2,500.
For downside protection, a critical zone that must be defended is the $2,000 psychological threshold, reinforced by the 50-period SMA, as illustrated in the accompanying chart.
According to the Glassnode cost basis distribution heatmap, a considerable support zone has been newly formed in the range between $1,880 and $1,900, representing an area where investors accumulated roughly 1.3 million ETH.
As previously documented by Cointelegraph, accumulation addresses for Ether experienced a notable increase in daily inflows during the period when ETH fell beneath $2,000 last week, indicating robust investor conviction in its long-term value proposition.