Several large-cap assets, including Bitcoin and Ethereum, struggled to make a mark in the past week as the general market suffered a steep downturn in prices. Various analyses indicate that recent macro developments in different countries have negatively impacted the market.
This significant decline has had a widespread effect on market sentiment, with most investors now treading cautiously. Notably, the recent drop in Ethereum open interest could hold serious implications for the price of ETH. Blockchain analytics platform CryptoQuant reported that Ethereum open interest has fallen by more than 40%, approximately $6 billion, in August. The “open interest” metric measures the total number of derivatives positions of a cryptocurrency, like ETH, currently open on all centralized exchanges.
An increase in this indicator’s value implies that investors are opening new positions in the futures and options market, indicating that money is flowing into ETH derivatives. Conversely, a decrease suggests that derivatives traders are closing their positions or getting liquidated.
As demonstrated in a chart from CryptoQuant, Ethereum open interest has been on a downward trend since the start of August, bottoming out on Monday amid the overall market downturn. Currently, the open interest of ETH stands at around $7.67 billion. Although some signs of recovery have emerged in the past day, a low open interest does not bode well for the Ethereum price, particularly from a historical perspective. Decreased positions in the derivatives markets could lead to a fall in liquidity, resulting in substantial price fluctuations due to market inefficiency.
Simultaneously, the falling open interest could dampen volatility in the Ethereum market in the short term, as fewer investors are betting on the ETH price. Low volatility suggests that the price of Ethereum might not witness any large movement anytime soon.
As of this writing, the price of Ethereum continues to hover around the $2,600 mark, reflecting an almost 4% decline in the past 24 hours. According to CoinGecko, the altcoin’s value is down by more than 13% in the last seven days.
