ETH open interest, a crucial indicator of market sentiment, has plummeted to a three-year low, raising concerns and sparking debate among traders. This decline, coupled with low futures funding rates, could pave the way for a significant short squeeze on bearish leveraged positions, potentially fueling a rally towards $2,500.
Ether (ETH) traded back above $2,000 on Friday, with its gains extending after the U.S. Consumer Price Index (CPI) print came in cooler than expected. This recovery puts ETH/USD on track for its first bullish weekly candle close since mid-January, fueling speculation about a possible rally.
Key takeaways indicate that Ether futures’ open interest has fallen by 80 million ETH in 30 days, with funding rates hitting three-year lows, suggesting a weakening bearish trend. Furthermore, ETH price has established strong support around $2,000, a level that must hold to secure the recovery.
ETH Open Interest Falls to Record Low
CryptoQuant data reveals that Ether futures open interest (OI) across all major exchanges has dropped by over 80 million ETH in the past 30 days. Binance, the world’s largest cryptocurrency exchange by trading volume, recorded the largest decline of about 40 million ETH (50%) over the last 30 days. related Crypto news can offer deeper insights into this trend.
Ether’s OI on Gate exchange fell by more than 20 million ETH (25%), while Bybit and OKX saw declines of 8.5 million ETH and 6.8 million ETH, respectively. Cumulatively, the four major platforms saw a total decline of about 75 million ETH, while other platforms accounted for the remaining five million ETH, confirming that the phenomenon is widespread and not limited to a single exchange.
This suggests that leverage traders are “reducing their exposure rather than opening new positions,” according to CryptoQuant analyst Arab Chain. This significant drop in OI amid dropping prices can be “viewed as a clean-up of weaker positions, thereby reducing the likelihood of sharp forced liquidations later on.”
“This environment may pave the way for a period of relative stability or the formation of a more solid price base for Ethereum in the near future.”
Ether futures funding rates on Binance have plunged deep into negative territory at -0.006, marking the lowest value recorded since early December 2022. “It indicates that the bearish sentiment has reached an extreme peak not seen in the last three years,” CryptoQuant contributor CryptoOnchain said in a Thursday Quicktake analysis.
Historically, extreme negative funding rates at major price support levels often precede a short squeeze.
“When the crowd is this convinced that prices will fall further, the market tends to move in the opposite direction to liquidate late bears,”
“Current data suggests we may be witnessing a classic capitulation event, mirroring the bottom formation of late 2022, potentially setting the stage for a sharp recovery.”
Ethereum Price Technical Analysis
The ETH/USD pair broke out of a falling wedge on the four-hour chart, to trade at $2,050 at the time of writing. The measured target of the falling wedge, calculated by adding the wedge’s maximum height to the breakout point at $1,950, is $2,150. Higher than that, the price may rise to retest the 100-period simple moving average (SMA) at $2,260 and later toward $2,500.
On the downside, a key area to hold is the $2,000 psychological level, embraced by the 50-period SMA, as shown in the chart below. The Glassnode cost basis distribution heatmap reveals a significant support area recently established between $1,880 and $1,900, where investors acquired approximately 1.3 million ETH.
As Cointelegraph reported, Ether accumulation addresses witnessed a surge in daily inflows as ETH dropped below $2,000 last week, signalling strong investor confidence in its long-term potential.
Source: Cointelegraph
