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The latest developments in the futures market of Ethereum, the largest altcoin, are causing excitement. Some charts are sending worrisome signals, and those who are aware of the situation are paying close attention to these messages. In particular, the open interest of Ethereum indicates an imminent increase in volatility.
Ethereum’s Open Interest is Rapidly Increasing
For those unfamiliar, open interest is an important measure to understand the futures market. It represents the total number of outstanding futures contracts. When the open interest is high, it indicates that many investors have open positions in the market. Currently, the open interest for Ethereum is continuously rising.
The current charts for Ethereum reveal a continuous increase in open interest. This upward trend in open interest suggests that investors are taking positions on whether the future price of ETH will decrease or increase. While high open interest can be seen as a sign of increased investor interest in Ethereum, it also indicates the occurrence of numerous speculative trades. As history has shown us, speculative trading can lead to high volatility.
When examining the open interest chart of ETH, a sharp divergence is observed. While Ethereum shows signs of consolidation with increased price volatility, the open interest continues to rise. This discrepancy may be an indicator of significant price movements. When there is such a discrepancy between price movement and open interest, it usually signifies a striking change in price.
Long Squeeze vs Short Squeeze
When the alarming increase in Ethereum’s open interest combines with volatile price movements, it indicates the approaching scenario referred to as a long squeeze or a short squeeze by investors. In other words, if the majority of open contracts consist of investors who have taken positions expecting an increase in Ethereum’s price, there may be a sharp drop with a long squeeze, or if they have taken positions expecting a price decrease, there may be a sharp rise with a short squeeze.
According to the latest data, Ethereum is trading at $1,541 with a market capitalization of $185.39 billion, recording a 0.06% decrease in the last 24 hours.
