The price of Ether (ETH) declined by 6% between March 19 and March 21 after it was unable to surpass the $2,050 resistance level. More significantly, since February 21, ETH has seen a 28% drop, underperforming compared to the overall crypto market, which fell by 14% in the same timeframe.
Despite these price challenges, Ether futures open interest reached an all-time high on March 21, prompting traders to speculate whether large investors are preparing for a potential rally toward $2,400, while also raising concerns about the possibility of cascading liquidations due to increased leverage.
The total open interest in Ether futures increased by 15% over a two-week period, reaching a record 10.23 million ETH on March 21. The exchanges Binance, Gate.io, and Bitget collectively control 51% of this market, while the Chicago Mercantile Exchange (CME) accounts for 9% of the open interest in ETH. In contrast, Bitcoin futures see CME leading with a 24% market share.
There has been a decline in demand for leveraged long positions in ETH. Increased activity in ETH futures generally points to institutional interest, as open interest measures leverage demand. However, since buyers (longs) and sellers (shorts) are constantly matched, a rise in open interest doesn’t automatically signal a positive sentiment in the market.
To assess whether buyers are seeking additional leverage, analysts often look at the prices of ETH futures monthly contracts in relation to spot exchange rates. In neutral market conditions, these derivatives usually trade 5% to 10% higher annually to reflect the longer settlement period. Should traders adopt a bearish stance, this premium would likely fall below that range.
The annualized premium for ETH monthly futures decreased to under 4% on March 21, down from 5% two weeks prior. This drop in the futures premium implies a reduced inclination for traders to employ the “cash and carry” strategy, which entails selling futures contracts while purchasing spot ETH to seize the premium as a fixed-income opportunity.
A portion of Ether’s price decline can be attributed to a lack of demand for U.S.-based Ether exchange-traded funds (ETFs), which experienced $307 million in net outflows for the two weeks ending March 20. Additionally, the prevailing macroeconomic conditions have dampened investor sentiment, with economists warning of increasing recession risks fueled by global tariff disputes, inflationary pressures, and U.S. government spending cuts.
Moreover, some analysts suggest that the recent weakness in Ether’s price is linked to a mismatch between network fees—which compensate validators—and the interests of decentralized applications (DApps) and layer-2 scaling solutions. This sentiment was succinctly expressed by a notable co-founder of a major platform.
Ethereum’s successful transition to proof-of-stake and the implementation of blob space for improved scalability via rollups, while enhancing the network’s capabilities, are also perceived as constraints on Ether’s price growth. Although the transaction costs on its layer-2 solutions remain low, some ETH investors feel inadequately compensated.
Furthermore, Ether’s price is facing headwinds from escalating macroeconomic risks, while DApp demand is on the decline—potentially due to heightened competition or diminishing investor interest. Notably, Ethereum’s base layer revenue plummeted to $605,000 on March 17, down from $2.5 million just two weeks prior.
There appears to be no evidence that the surge in ETH futures open interest is a result of bullish positioning. Instead, demand for leveraged long positions is strikingly weak, indicating a cautious outlook among market participants.
This content is provided for informational purposes only and should not be construed as legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect the views of any associated entity.