Analysis: Ethereum Leverage Holds Despite 50% Drop in Open Interest, Raising Volatility Risk

Open interest in the Ethereum futures market has fallen by roughly half, but actual leveraged positioning remains largely intact, according to an analysis.

BaykusCharts, a contributor to on-chain analytics firm CryptoQuant, wrote on October 28 that Binance's Ethereum open interest now stands at about $5.8 billion. That is down by more than half from last summer's peak of $12.3 billion.

But the decline in dollar-denominated open interest does not necessarily mean investors have liquidated positions on a large scale. Ethereum's price also fell by nearly half over the same period, from $4,700-$4,800 to about $2,300. Measured in ETH, open interest stood at a similar level at both the peak and now, at about 2.5 million ETH.

Funding rates also suggest the market lacks a clear directional bias. The sharp increase in positive funding seen in 2021 and early 2024 has not reappeared. After turning negative several times this year, funding has recently moved to slightly above 0%. That indicates positioning is not excessively tilted toward either longs or shorts.

BaykusCharts said this structure could lower the risk of rapid cascading liquidations while also amplifying price volatility. With positions not concentrated in one direction, immediate liquidation pressure appears limited. But because a sizable amount of leverage remains in the market, price swings could widen quickly if Ethereum moves decisively in either direction.

As key indicators to watch, BaykusCharts pointed to the combined movement of price, funding rates and open interest. A sharp rise in funding alongside higher prices could signal overheating in long positions. Rising open interest even as prices fall could indicate an expansion in short positions.

BaykusCharts added that dollar-based open interest alone makes it difficult to judge the market's true level of leverage during periods of large price swings. To gauge actual position size, investors should also track indicators based on ETH-denominated open interest.