Ethereum (ETH) surged 15% from November 20 to November 27, surpassing the $3,500 level for the first time in four months. The rally coincided with record Ethereum futures open interest, raising questions among traders about whether the rise in leverage was indicative of excessive bullish sentiment.
Ether futures aggregate open interest in ETH. Source: Coinglass
Total open interest in Ether futures increased 23% in the 30 days ending November 27, reaching $22 billion. For context, three months ago, on August 27th, Bitcoin (BTC) futures open interest reached $31.2 billion. Additionally, on May 13, when Ether was trading above $4,000, ETH futures open interest was $14 billion.
Dominating this market are Binance, Bybit, and OKX, which collectively account for 60% of ETH futures demand. However, the Chicago Mercantile Exchange (CME) is steadily increasing its size. Notably, CME currently has $2.5 billion in ETH futures open interest, indicating increasing institutional participation. This is a development that is often seen as a hallmark of market maturity.
High demand for leverage, whether from institutional or individual investors, does not necessarily indicate an inherently optimistic mood. Derivatives markets create a balance between buyers and sellers, creating strategic opportunities to take advantage of a variety of scenarios, including price declines.
For example, a cash and carry strategy involves purchasing Ether in the spot (or margin) market while selling the same notional amount in ETH futures. Likewise, traders can take advantage of interest rate differences by selling longer-term contracts, such as the one expiring in March 2025, and buying shorter-term contracts, such as the one expiring in December 2024. Although these strategies do not reflect bullish sentiment, they significantly increase the demand for Ether leverage.
Annual premium for 2-month Ethereum futures. Source: Laevitas.ch
The annual premium (base rate) for 2-month ETH futures surpassed the 10% neutral threshold on November 6 and has remained at a solid 17% over the past week. This ratio allows traders to earn fixed returns while fully hedging their exposure through cash and carry strategies. However, it is notable that some market participants are accepting a 17% cost to hold leveraged long positions, which suggests some bullishness.
ETH liquidations may increase due to retail investors
In a highly leveraged environment, the greatest risk comes from retail traders, known as “degens,” who often use leverage of up to 20x. In such cases, a standard daily price drop of 5% could wipe out the entire margin deposit and trigger liquidation. Between November 23 and November 26, $163 million in leveraged long ETH futures positions were liquidated.
To measure the health of Ether retail futures positions, perpetual contracts serve as a key indicator. Unlike monthly contracts, perpetual contracts closely reflect the spot price of ETH. They balance leverage between buys and sells using variable funding rates, typically ranging from 0.5% to 2.1% per month.
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ETH perpetual futures 8-hour funding rate. Source: Laevitas.ch
The current ETH perpetual futures funding rate is 2.1% per month, which is close to the neutral threshold. There was a brief surge above 4% on November 25th, but it did not last. This means that even with a 15% weekly rise in ETH price, retail demand for leveraged buys is still quiet.
These dynamics strengthen the argument that the increase in Ethereum open interest reflects institutional strategies such as hedging or neutral positioning rather than outright bullish sentiment.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.