By Chris Hollingworth 
Ether (ETH) experienced a 6% price decline between March 19 and March 21 as it struggled to surpass the $2,050 resistance level. Notably, ETH has fallen by 28% since February 21, underperforming the broader cryptocurrency market, which declined by 14% over the same period.
Despite the price challenges faced by ETH, Ether futures open interest reached a record high on March 21. This development has prompted traders to speculate whether significant investors are positioning themselves for a potential rally towards $2,400, while also raising concerns about the risks associated with increased leverage and potential liquidations.
On March 21, the aggregate open interest in Ether futures surged by 15% over two weeks, reaching a record of 10.23 million ETH. According to CoinGlass data, Binance, Gate.io, and Bitget collectively dominate 51% of the market, with the Chicago Mercantile Exchange (CME) holding a 9% share of the ETH open interest, in contrast to Bitcoin futures where CME leads with a 24% market share.
The heightened activity in ETH futures contracts typically indicates institutional investor interest, as open interest reflects the demand for leverage. However, it’s essential to note that buyers (longs) and sellers (shorts) are always matched, so an increase in open interest does not necessarily indicate a positive market outlook.
Analysts can assess whether buyers are seeking more leverage by comparing ETH futures monthly contract prices to spot exchange rates. In neutral markets, these derivatives typically trade 5% to 10% higher on an annualized basis to accommodate the extended settlement period. A drop in this premium below the expected range may signal a bearish sentiment among traders.
The annualized premium for ETH monthly futures dropped below 4% on March 21, down from 5% two weeks earlier. This decline in the futures premium suggests reduced incentives for traders to employ the “cash and carry” strategy, which involves selling futures contracts while concurrently buying spot ETH to capitalize on the premium as a fixed-income trade.
Ether’s price decline can be attributed in part to weak demand for US-based Ether exchange-traded funds (ETFs), which experienced net outflows of $307 million in the two weeks leading up to March 20. Moreover, concerns about a potential global recession resulting from tariff wars, inflationary pressures, and US government spending cuts have also contributed to dampened investor confidence.
Some analysts believe that Ether’s recent price weakness is linked to an imbalance between network fees required to compensate validators and the interests of decentralized applications (DApps) and layer-2 scaling solutions. This perspective, articulated by Martin Köppelmann, co-founder of Gnosis, suggests that Ethereum’s shift to proof-of-stake and the implementation of blob space for scalability may be limiting Ether’s price growth.
Despite the efficiency of Ethereum’s layer-2 solutions in reducing transaction costs, some ETH investors feel that they are not adequately rewarded. The declining demand for DApps, possibly due to increased competition or waning investor interest, has also contributed to the pressure on Ether’s price. Ethereum’s 7-day base layer revenue dropped to $605,000 on March 17, a significant decrease from $2.5 million just two weeks earlier.
The surge in ETH futures open interest does not necessarily indicate bullish positioning. Weak demand for leveraged long positions suggests a cautious market sentiment prevailing among investors.
Please note that this article is for informational purposes only and should not be construed as legal or investment advice. The expressed views and opinions are based on available information and analysis.
