Is ETH bullish or bearish?

Ether (ETH) surged 11.7% between September 17 and September 19, hitting a three-week high of $2,572. This price movement coincided with a rise in Ether futures open interest, which reflects the total number of contracts on a derivatives exchange. As a result, traders have become wary that higher leverage could potentially lead to greater price volatility.

Lower interest rates support bullish momentum for ETH, but the US economy remains a risk.

The recent ETH price rally mirrored the broader cryptocurrency market’s 8.3% gain, driven by a combination of interest rate cuts and strong labor market data in the U.S. This momentum also led the S&P 500 to close at a record high on September 19. Lower interest rates make it less expensive for companies to issue new debt, easing concerns about a potential equity market correction.

However, economists are still divided on whether the U.S. Federal Reserve is effectively balancing economic growth and recession risk, according to a report from Yahoo Finance. This ongoing uncertainty has crypto investors cautious, questioning whether it is too early to assess the success of the Fed’s monetary strategy.

On September 20, FedEx stock plunged 15% following disappointing earnings the day before. CEO Raj Subramaniam attributed the lack of results to a “weak industrial economy” and inflationary pressures, which are driving customers away from higher-fee priority shipping services. Subramaniam also cited a “challenging operating environment” that is impacting operating margins, as noted by Yahoo Finance.

Despite these broader macroeconomic concerns, Ethereum futures open interest surged to 4.66 million ETH on September 19, the highest level since January 2023, signaling strong demand for leveraged positions.

The recent price increase clearly illustrates the growing interest in Ether leverage via futures contracts, but it does not necessarily indicate a bullish sentiment among traders. In the derivatives market, every buyer (long) is matched by a seller (short), but the level of demand for leverage fluctuates. This difference can be seen in the monthly ETH futures contract price.

ETH futures premium remains stable despite increase in open interest

While one might expect the increased demand for Ethereum futures to be driven by bullish sentiment, the data doesn’t provide a clear view on this.

The ETH futures premium has remained relatively stable since August at around 6% year-to-date, just above the neutral 5% threshold. Traders typically demand a premium to compensate for the long settlement period of the monthly contract. During periods of heightened excitement, this indicator can easily exceed 10%, as it did in late July.

This stability in the futures premium suggests that there is little incentive for traders to engage in a “cash and carry” strategy where they sell futures contracts while simultaneously buying spot ETH to capture the premium as a fixed income trade. Therefore, we can infer that there is some genuine demand for bearish positions on Ether, as the futures premium has stabilized despite the recent price rally.

relevant: Bitwise Exec Says Ethereum Is a ‘Contrarian Investment’ Until 2025

The current market situation is in stark contrast to late May, when ETH rose 28%, pushing futures open interest to 4.44 million ETH. This is just 5% below current levels. However, on May 31, Ether futures premiums surged to 14%, generally indicating excessive leverage demand from bullish traders. This time around, leverage between longs and shorts seems more balanced, making chain liquidations appear much less risky.

Currently, Binance and Bybit are leading the Ether futures market with $11.9 billion in open interest, with 30% and 17% market share respectively. This concentration suggests significant retail demand, especially since OKX, Deribit, and Chicago Mercantile Exchange account for 24% of ETH futures open interest.

Despite the increase in open interest, the lack of excessive leverage eases concerns that short-term volatility could be higher.