ETH Open Interest Retraces from All-Time High – Where Next?

Open interest (OI) in ethereum (ETH) futures has retraced from the all-time highs in ETH terms reached in late August, despite Ethereum’s highly anticipated transition to proof-of-stake moving closer by the day.

Per a new report from crypto researcher Kaiko, a pullback in ETH OI has been observed so far in September, retracing from 5.1m ETH in the end of August to 4.7m ETH as of September 5. And although the current open interest is a decline from the highs, it still marks one of the largest buildups of OI in the ETH futures market.

The uptick in interest from futures traders comes as the Ethereum network is gearing up for the network’s transition from proof-of-work (PoW) to proof-of-stake (PoS), an event known as the Merge that is expected to take place between September 10 and 20.

The notable changes in OI has come as the spot price of ETH has continued to rise since the end of August, moving from a closing price on August 31 of USD 1,554 to USD 1,668 as of Tuesday at 11:30 UTC.

Ethereum price is up 6.8% today on Merge optimism

At the time of writing, the spot price of ETH was up 6.8% for the past 24 hours and up 7.4% for the past 7 days. The daily gain was enough to make it today’s best performer among the top 10 cryptoassets by market capitalization, per CoinGecko data.

According to the Kaiko report, the decline in OI has come as funding rates in the ETH futures market briefly crossed into positive territory, before later falling back below the zero-line. 

“This could indicate that sentiment regarding ETH ahead of the Merge is improving among futures investors as the focus changes from risk hedging pre-Merge to a more optimistic outlook post-Merge,” the Kaiko report said.

A positive funding rate means that traders who are long need to pay a funding fee to those who are short, while a negative funding rate results in the opposite situation. 

Funding rates on perpetual futures are generally positive during bullish market conditions and negative during bearish conditions.