Investors are Liquidating their Assets
As one expert noted, the leverage on the ETH futures market has lately increased significantly.
The indicator open interest represents the total number of open Ethereum futures contracts across all derivatives exchanges. When the value of this statistic rises, more positions are being opened by investors in the market. An increase in futures positions suggests that market leverage is increasing, hence this trend might increase coin price volatility.
On the other side, declining readings of the indicator indicate that investors are now liquidating their assets. The value of ETH may become less volatile as a result of this trend. It appears that the metric’s value has increased dramatically recently. Over the past few weeks, the open interest in Ethereum has experienced some dramatic uptrends. At 7.4 billion, the indicator has already hit its highest point in the previous four months. But this comparison offers something worthwhile.
Ethereum Market is Still Leveraged
When these statistics were first seen roughly 4 months ago, the cost of ETH was about 3.3k USD. However, today’s cost is only 2k USD, or around 1.3k USD less than it was back then.
Despite the price being substantially lower, the Ethereum market may still be leveraged to the same extent given that open interest is at the same level.
When very significant leverage builds up in the futures market, any sudden change in price might quickly close out many bets. This price move then intensifies as a result of these liquidations, liquidating more holdings. Liquidations can cascade together in this fashion, and the situation is described as a liquidation squeeze. This is what causes a market with excessive leverage to be volatile. The most recent increase in the price of ETH can come to an end if a long squeeze occurs this time.
Source: https://www.thecoinrepublic.com/2022/08/16/eth-crosses-2k-usd-surging-the-hopes-of-ethereum-enthusiasts/