Recent events involving Ethereum in the futures market are making waves. Those in the know are paying careful attention as the charts are sending some worrying signals.
An important indicator for comprehending the futures market is open interest. It stands for the total number of unresolved futures contracts that are still in effect. A high level of open interest suggests that there are numerous traders with open positions in the market. Open interest in Ethereum has been steadily increasing. What does this signify, though? And maybe more significantly, why should we worry?
Ethereum’s most recent charts show steadily rising open interest. The ongoing increase in open interest shows that more and more investors are placing bets on the future, up or down, price movements of ETH. High open interest can be seen as a sign of increased activity and interest in Ethereum, but it also implies that a lot of speculative trade is taking place. History has shown us that speculative trading can result in very high volatility.
One may see a clear divergence when looking at the open interest chart that is included. Even if the price of Ethereum has fluctuated and appears to be consolidating, the amount of open interest is rising. This discrepancy may signal large price movements to come. When price movement and open interest diverge, it frequently means that a significant price change is approaching.
With the “scary” increase in open interest and the erratic price movements, there may be a “long squeeze” or “short squeeze,” as described by traders. A series of sell-offs might occur if most of these open contracts are betting on Ethereum’s price to rise (long bets) and the price starts to fall.
