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Open Interest in Ethereum Goes All-Time High as The Merge Gets Near

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Open Interest on Ethereum Goes All Time High as The Merge Gets Near
Open Interest on Ethereum Goes All Time High as The Merge Gets Near

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The Merge is right at the doorstep. With the launch only a few weeks away, people’s interest in Ethereum has grown more volatile. The open interest in Ethereum has risen as the blockchain is closer to shifting to Proof-of-Stake.

A Sharp Rise in Ethereum Open Interest

According to the report we’ve come across from Arcane Research, the open interest in ETH in futures and perps has risen to 1.2 million within the last week.

Open interest refers to the total number of open positions on Ethereum futures and perpetual contracts in the current market. These positions contain both short (people who’re betting the ETH 2.0 will succeed) and long (people who’re betting on ETH to fail).

Historically, whenever this (open interest) indicator has seen an uptrend, the volatility of the market has increased. We are amidst the crypto winter, and this added volatility to the market has bound to make many traders weary.

Below is the open interest chart. As you can see, the open interest has been trending sideways for almost a year, and a sharp increase soon followed after the onset of crypto winter when ETH reached $1k levels. It is not at its all-time high at 4.21 million.

The Reason Behind the Peak

After the arrival of the crypto winter and the unraveling of many crypto lenders such as Celsius, many arbitrage opportunities came into the picture, with people buying assets from one exchange and selling them on another. That was the reason behind the previous peak of July 14th. However, this time, the Ethereum future markets are providing massive discounts – meaning that many are attempting to short Ethereum’s fate after the upcoming merge update.

That said, Arcane’s research does tell us that this squeeze won’t be that significant.

Ethereum Price Prediction

Ethereum has been trading at a sideways range between $1.5k and $1.6k currently, with a minor uptick of 1.16% in the past 24 hours. But this isn’t enough to tell us how big of an impact Ethereum’s Merge would make.

Ethereum Price Prediction

The number of open positions means the volatility is high and can swing the market in both ways. However, there are reports coming in many whales want to jump ship because of their lack of faith in the upcoming update. That said, there are two significant reasons why investors might be willing to short Ethereum futures ahead of the Merge:

  1. Delayed Transition of Proof of Stake: Historically, the Merge has had a rocky patch up until now. The difficulty bomb was delayed, and the Ropsten test, although successful, revealed many bugs. Some investors are betting on history to repeat itself – believing that the update can once again be pushed back further.
  2. Hedging against the long positions: Those who have taken a long position on Ethereum are not careless. They are hedging their bets and minimizing risk if the update fails to take off. Investors also believe that taking small short positions will let them get their hands on the ETHPOW (Ethereum Proof-of-Work) airdrop.

If the transition to proof-of-stake turns out to be successful, many of these short positions will close – leading to the open position graph showing a downtrend – signaling that stability has arrived.

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More About Ethereum’s Merge

The Merge is Ethereum’s transition from a Proof-of-Work consensus mechanism to Proof-of-Stake. The devs behind Ethereum have been planning to make this change since ETH entered the markets. With this transition, the Ethereum blockchain will become more environmentally friendly – instantly cutting down carbon emissions by 99%.

The arrival of the Merge update will make corporate leaders, like Tesla, look at Ethereum as an investment opportunity as, till now, they have stayed away from it because of its energy-hogging PoW mechanism.

Additionally, the introduction of Merge will reduce ETH issuance by 90%- – increasing its scarcity and price.

Change is Coming, and the Market is Reacting to It

“Safely Optimistic” is the right word to describe the current market sentiment. While most are bullish about the world’s best altcoin taking a more ecologically friendly route, they are also apprehensive about its implementation. After all, the past updates have hardly gone without a hiccup.

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