The excitement surrounding the potential approval of a spot Ethereum exchange-traded fund (ETF) in the United States has driven Ethereum futures open interest to a staggering $10.6 billion.
With Ether (ETH) prices surging by 38.5% over the last 30 days, reaching $3,165, investors are closely monitoring developments in anticipation of the Securities and Exchange Commission (SEC) regulatory decisions.
Rising demand for leverage spurs anxiety among bulls
The surge in Ethereum futures open interest has sparked anxiety among bullish investors, particularly as it approaches the peak of $11 billion in November 2021, followed by a significant correction of 55%.
However, data indicates that before February 12, Ether Futures’ open interest had remained below $8.5 billion for two years. Within two weeks, it skyrocketed to the current $10.6 billion, signaling a substantial increase in leverage demand. Despite this, analysts caution that the metric alone does not provide insight into the balance between long and short positions.
Analysts from JPMorgan Investment Banking suggest a 50% likelihood of an Ether ETF approval by May, contributing to the growing investor optimism. Additionally, some, including Keyrock’s CEO Kevin de Patoul, view the transition of Ethereum to a proof-of-stake consensus model and the introduction of staking yield as factors that could influence the SEC’s perspective on a potential ETF.
Furthermore, capital inflows into liquid-staking derivative applications such as EigenLayer have surged, with the protocol securing $100 million in funding from venture capital firm Andreessen Horowitz (a16z). EigenLayer’s total value locked (TVL) jumped from $1.8 billion to $8.3 billion in just 30 days until February 26. This trend underscores the growing interest in Ethereum-based financial instruments and protocols.
Healthy derivative metrics suggest bullish sentiment
Despite the rapid price gains, derivative metrics indicate a healthy market sentiment. The Ethereum futures premium, known as the basis rate, has been hovering around 15% since February 14, a level typically associated with bullish sentiment without signs of excessive leverage. In contrast, the 22% annualized premium observed on January 3 indicated a higher liquidation risk, signaling overly optimistic sentiment among traders.
Additionally, analysis of options markets provides further insight into investor sentiment. The 25% delta skew, which measures the balance between call and put options, currently stands at -3%. This indicates balanced pricing between buying and selling options, with traders exhibiting skepticism towards Ether’s ability to sustain levels above $3,000. The neutrality of this indicator since February 20 suggests cautious optimism among traders rather than excessive confidence in Ether’s price trajectory.
