As the dominant player among alternative cryptocurrencies, Ethereum (ETH) is approaching the $3.7k milestone accompanied by a significant achievement. One of the essential metrics for ETH derivatives has reached an unprecedented high. The question now arises: does this development signal a bullish trend, or could it potentially impact the price of ETH negatively?
Potential Bearish Sentiment Around Ethereum’s Milestone
The Open Interest (OI) for Ethereum has now surged to a record-breaking level exceeding $17 billion. This uptick in OI signifies an influx of more traders engaging in futures or options contracts, which implies increased capital flowing into the market.
Notably, another derivative indicator, the funding rate, has also experienced a notable uptick in recent days. A rise in this rate typically reflects an optimistic market sentiment where traders are willing to pay higher costs to maintain their long positions.
Despite the initial interpretation hinting at a continuous uptrend, historical data suggests a different scenario. Looking back at previous instances when open interest saw sharp increases, it was often followed by price corrections.
Similar patterns occurred in November 2021 and June 2024, where peaks in OI coincided with market tops.
Is Ethereum Heading Towards a Repeat Scenario?
An in-depth analysis of Ethereum’s on-chain data by CryptoCrypto aimed to determine if ETH had reached its market peak. According to their examination of CryptoQuant’s data, Ethereum’s exchange reserves were on the rise—a signal indicating growing selling pressure.
Moreover, the stochastic indicator for Ethereum was showing overbought conditions, suggesting an imminent rise in sell-offs, often leading to price corrections.
Further investigation revealed that Ethereum’s seller exhaustion index had hit a peak. Historical charts indicated that whenever this metric reached its zenith, ETH’s price experienced significant downward movement in the subsequent days.
However, one intriguing observation was that the Relative Strength Index (RSI) had yet to enter the overbought territory. This indicates potential for more buying activity, which could support Ethereum in maintaining a bullish trajectory.
As of the latest data, Ethereum is currently testing a support level. If the RSI’s signals hold true, Ethereum might successfully navigate this level and continue its upward trend.
Nonetheless, in the scenario where the substantial surge in OI and funding rate triggers a price drop, similar to historical trends, Ethereum could retreat to its lower support levels. Specifically, a drop from present levels could initially push ETH back to $3.38k.