Ethereum (ETH) has experienced notable growth in recent days, but seasoned traders are beginning to raise red flags. Open interest in ETH futures has hit an all-time high, a signal that in past cycles has often preceded a sharp price correction.
On October 15, Ethereum’s price surged by 8.8%, reaching $2,650. While this initially appeared as good news for investors, the following day saw open interest in ETH futures surpass 5 million ETH — a significant psychological milestone and the highest level recorded in the cryptocurrency's history.
The Past Repeats Itself
Open interest represents the total number of active contracts in the futures market. A rise in this metric typically signals increased participation by traders using leverage. However, with higher leverage comes the risk of a volatile unwind when market momentum shifts.
If we look back at previous patterns, there are reasons to be cautious. On August 2, 2024, for example, open interest in ETH hit a local high of 4.75 million. Within four days, the price of Ethereum plunged 31.7%, falling from $3,205 to $2,186. Similarly, on April 1, when open interest exceeded 4 million ETH, a 24% drop followed, with prices falling from $3,648 to $2,604 over 11 days.
The Domino Effect
The risk comes from what is known as "cascade liquidations." When prices start to fall, leveraged positions are the first to be hit. Traders with insufficient collateral see their positions closed, adding to the downward pressure. Automated trading bots exacerbate the decline, triggering further sell-offs in the spot market. What starts as a small correction can spiral into a much larger sell-off.
What’s Next for Ethereum?
If history repeats itself, Ethereum could see a 20-30% drop, which would bring the price down to around $1,900 — $1,700. However, the general sentiment in the crypto market could still shift. If Bitcoin manages to break above $70,000, a large number of open leveraged positions on Ethereum could push prices higher rather than lower. Regardless, traders should brace for increased volatility, as the crypto market is notoriously unforgiving, especially when it comes to high-leverage trading.