The interest rate for opening ETH futures contracts reaches an all-time high as the price exceeds $4,500 — Will this last?

Ethereum (ETH) recorded an impressive increase to 4,518 USD on Tuesday, as investors showed a preference for higher risk after consumer inflation in America rose only slightly by 0.1%. However, data from derivation products suggests that the strength of this bullish trend may have been exaggerated, especially as some major companies are pursuing their own layer-1 strategies instead of building on Ethereum's layer-2 ecosystem.

Summary of open interest rates of ETH futures | Source: CoinGlass## Bullish in ETH futures

The open interest for ETH futures has risen to 60.8 billion USD, up from 47 billion USD just a week ago. This increase is primarily due to the bullish trend of ETH, as the open interest measured in Ether remains 11% lower than the peak of 15.5 million ETH on July 27.

Weak demand for long positions

The derivative indicators show that demand for long orders is decreasing, although the spot market has recorded strong growth. The annual premium for ETH perpetual futures contracts is currently at 11%, considered neutral. Indicators above 13% indicate excessive demand for leveraged long positions, which was last recorded on Saturday. The lack of momentum from active investors is noteworthy, especially when considering the scale of the recent bullish trend.

Annual premium for perpetual ETH futures | Source: laevitas.chTo gain deeper insights, it is necessary to evaluate the monthly ETH futures, as perpetual contracts are often the preferred choice for retail investors. These contracts, with a fixed expiration date, usually trade with an annual premium of 5% to 10% compared to the spot price, reflecting the extended settlement time.

The annual premium for 30-day ETH futures | Source: laevitas.chAfter reaching 11% on Monday, the premium dropped to 8% on Tuesday. Although the price of ETH has increased by 32% in the past 10 days, interest in long positions has not returned to levels seen in previous bullish cycles, indicating skepticism about Ethereum's fundamentals as well as on-chain activity trends.

Expert Opinions

Users on social media X, techleadhd, have pointed out that Stripe, Circle, Tether, and JPMorgan have launched their own chains instead of adopting Ethereum's layer-2 solutions. While this viewpoint may not be accurate when evaluating Coinbase and Robinhood, platforms that remain tied to Ethereum's base layer, it indicates that some businesses prioritize control over layer-1 and customized infrastructure.

Cryptocurrencies, especially stablecoins backed by traditional reserve funds, require less decentralization to operate effectively. Products from JPMorgan and Stripe aim to keep users within closed ecosystems, not allowing withdrawals to public networks. For these models, the integration of Ethereum's layer-2 provides little incentive.

Weak on-chain Ethereum activity and layer-1 competition

Despite the increasing demand from institutions for ETH, as reflected in the inflows to spot ETF funds, the on-chain indicators paint a less optimistic picture. The total value locked (TVL) on the Ethereum network has decreased by 7% over the past 30 days.

TVL Ethereum (left) compared to the weekly fees of Ethereum (right) | Source: DefiLlamaTVL decreased to 23.3 million ETH from 25.4 million ETH a month ago, while the weekly base fees totaled 7.5 million USD, down 27% from the previous month. Notably, Ethereum's weekly fees remain lower than its major competitors, with Solana reaching 9.6 million USD and Tron reaching 14.3 million USD.

Many large companies are focusing on their own layer-1 solutions, which further reinforces concerns about Ethereum's competitiveness as a decentralized infrastructure for Web3 and financial applications.

Ultimately, the nominal increase in the number of open ETH futures contracts is primarily a result of the 51% bullish increase in ETH over the past 30 days, rather than an indication of rising demand for leveraged long positions.

Mr. Teacher