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Ethereum Breaks $2,900, But Watch Out For Futures Overheating

Ethereum has broken beyond the $2,900 level during the past day, but data shows the futures market may be starting to become overheated.

Ethereum Has Now Broken Through The $2,900 Level

While Bitcoin has slumped to an overall sideways trajectory recently, Ethereum appears to have decided to pick a path of its own, as the second largest asset in the sector has surged almost 4% over the past 24 hours.

During this latest jump, Ethereum has touched the $2,900 mark for the first time since the start of May 2022. The below chart shows how the coin has performed over the last few days.

Ethereum Price Chart

Following this rise, Ethereum investors would now be enjoying profits of more than 16% over the past week. In the same period, Bitcoin has only put together returns of about 8%.

While ETH’s decoupling may be an optimistic sign for the asset, a pattern seems to be emerging that could prove to be a worrying sign.

ETH Open Interest Has Observed A Sharp Increase Recently

As explained by an analyst in a CryptoQuant Quicktake post, the ETH Open Interest has gone through a strong surge recently. The “Open Interest” is an indicator that keeps track of the total amount of Bitcoin futures contracts that are currently open on all centralized derivative exchanges.

When the value of this metric rises, it means that the investors are opening up fresh positions on the futures market right now. Generally, total leverage in the sector goes up as more positions pop up, so this trend can result in a higher amount of volatility for the cryptocurrency.

On the other hand, a decline in the indicator implies ETH futures contract holders are either closing up their positions of their own volition, or are being liquidated by their platform. The asset’s price may behave more stably following such a decrease.

Now, here is a chart that shows the trend in the Ethereum Open Interest over the last few years:

quicktake-image

From the graph, it’s visible that the Ethereum Open Interest has risen to high levels recently and has attained a peak that’s higher than any witnessed in almost two years.

“This surge indicates sustained confidence among futures traders in Ethereum’s current uptrend,” notes the quant. “However, given the impulsive nature of the recent ascent, traders should exercise caution and consider the potential for sudden liquidation events, which could trigger notable short to mid-term price declines.”

As mentioned before, the asset becomes more likely to show volatility when this indicator rises. The source of this volatility can be mass liquidation events called squeezes, which can trigger a violent cascade effect on the futures market, amplifying the price swing that triggered the event.

Since the Ethereum Open Interest is very high right now, a futures squeeze could definitely be a possibility for the cryptocurrency.

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Ethereum Breaks Above $2,400: This Metric Points To Further Upside

On-chain data shows an Ethereum metric is giving a bullish signal as the cryptocurrency’s price has broken past the $2,400 barrier during the past day.

Ethereum Has Continued To Leave Exchanges Recently

In a CryptoQuant Quicktake post, an analyst explained the recent relationship between the Ethereum price and data of the exchange netflow indicator.

The “exchange netflow” here refers to a metric that keeps track of the net amount of the asset entering or exiting out of the wallets of all centralized exchanges. The indicator’s value is calculated by subtracting the outflows from the inflows.

When the flow has a positive value, the inflows are overwhelming the outflows right now, and a net number of coins is moving into the custody of these platforms.

One of the main reasons investors might deposit their tokens on the exchanges is for selling-related purposes. This trend can potentially have bearish implications for the asset’s price.

On the other hand, the negative indicator implies the holders are making net withdrawals from these platforms. Such a trend suggests the investors may be accumulating for the long-term, which would naturally be bullish for the cryptocurrency’s value.

Now, here is a chart that shows the trend in the Ethereum exchange netflow, as well as its 14-day exponential moving average (EMA), over the last few months:

Ethereum Exchange Netflow

As highlighted by the quant in the above graph, the Ethereum price has observed an overall bullish trend in the last few months as the 14-day EMA exchange netflow has mostly been inside the negative territory.

There have been some spikes in the positive region. With these net deposits, the cryptocurrency has usually encountered some degree of resistance, implying that these transfers added to the selling pressure in the market.

Recently, the indicator has assumed red values for more than a week straight, suggesting that investors have been constantly making net withdrawals. The scale of the negative spikes has also been quite significant this time, meaning that some whales are involved.

Off the back of this potential accumulation from the investors, Ethereum has observed its recovery below the $2,400 level. Since the netflow has continued to be quite negative recently, it’s possible that this rally isn’t all the coin would see; there may still be potential for further upside.

Spikes back into positive territory may be to watch for; however, if the pattern followed in the past few months is to be believed, they may cause the cryptocurrency to hit at least a local top.

ETH Price

At the time of writing, Ethereum is trading at around $2,420, up more than 6% over the past week.

Ethereum Price Chart