Ether Drops 28% Since February, Futures Open Interest Hits Record

Ether (ETH) experienced a 6% price decline between March 19 and March 21, failing to surpass the $2,050 resistance level. This drop is part of a broader trend, with ETH falling 28% since February 21, outperforming the broader crypto market, which declined 14% over the same period.

Despite these price struggles, the open interest in Ether futures reached a new all-time high on March 21. This development has sparked debate among traders about whether large investors are positioning for a potential rally toward $2,400 or if the heightened leverage could lead to cascading liquidations.

The aggregate open interest in Ether futures increased by 15% over two weeks, reaching a record 10.23 million ETH. Major exchanges such as Binance, Gate.io, and Bitget collectively hold 51% of the market, while the Chicago Mercantile Exchange (CME) holds 9% of ETH open interest. This distribution contrasts with Bitcoin futures, where CME leads with a 24% market share.

The increased activity in ETH futures contracts typically indicates institutional investors’ interest, as open interest measures the demand for leverage. However, an increase in open interest does not inherently indicate a positive outlook, as buyers and sellers are always matched. To gauge whether buyers are seeking more leverage, analysts compare 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 account for the extended settlement period. If traders turn bearish, this premium would likely drop below that range.

The annualized premium for ETH monthly futures dropped to below 4% on March 21, down from 5% two weeks earlier. This decline suggests reduced incentives for traders to use the "cash and carry" strategy, which involves selling futures contracts while simultaneously buying spot ETH to capture the premium as a fixed-income trade.

Part of Ether’s decline can be attributed to weak demand for US-based Ether exchange-traded funds (ETFs), which saw $307 million in net outflows over the two weeks ending March 20. The macroeconomic environment has also dampened investor confidence, with economists warning of rising recession risks due to global tariff wars, inflationary pressures, and government spending cuts.

Some analysts argue that Ether’s recent price weakness stems from an imbalance between network fees and the interests of decentralized applications (DApps) and layer-2 scaling solutions. Ethereum’s successful shift to proof-of-stake and the introduction of blob space to enhance scalability through rollups have significantly boosted the network’s capabilities but are also seen as factors limiting Ether’s price growth. Despite the low transaction costs of its layer-2 solutions, some ETH investors believe they are not being adequately rewarded.

Ether’s price has faced pressure from rising macroeconomic risks, while demand for DApps continues to decline—whether due to increased competition or waning investor interest. Ethereum’s 7-day base layer revenue fell to $605,000 on March 17, a sharp drop from $2.5 million just two weeks earlier.

There is no indication that the surge in ETH futures open interest is driven by bullish positioning. On the contrary, demand for leveraged long positions remains notably weak, suggesting cautious market sentiment.