Ethereum’s OI is up 75% in 7 days, how will the price react?

The 2021 alt season may have kicked off with Ethereum’s high OI. Currently, the open interest in Ethereum is higher than $3.5 Billion. It is a rare occurrence that a bullish trend emerges so clearly in Ethereum, but Bitcoin’s price rally has supported the trend. During the past weekend, the OI broke all records and gained 30% on the December level. Top spot exchanges like Binance and OKEx led the way to this record high in Ethereum futures. Binance had the highest share of open interest, nearly 23%.

Source: The Block

The OI has increased from below $2 Billion in the last two weeks of December 2020 to nearly $2.6 Billion. This increase accounts for the top 10 exchanges, as shared in the above chart. Nearly 99% of Ethereum addresses are profitable currently, and Ethereum is still leaving spot exchanges. The narrative of scarcity driving the price higher is building up and what happens next will explain what happens when there is no reason for retail traders to sell.

In the past 24 hours, Ethereum reserves have dropped by nearly 54%, based on data from Chainalysis. Amidst the price rally, there is continued hope for the price to discover a new ATH, since the trade intensity is relatively low. The trade intensity may increase when the transaction volume and size goes up. This may boost the volatility even further. The transaction volume is close to half of the previous bull run, however, with the rising price, it may climb up substantially. 

Ethereum's open interest is up 75% in 7 days

Source: The Block

Ethereum’s price chart and volume suggest that though it may have kicked off the price rally, the current predictions by on-chain analysts may still be conservative, and it may rally further. The rapid increase in Ethereum’s OI is not entirely due to institutional investors and whales, it is an interesting fact that there is a relatively high percentage of retail traders driving the Ethereum price rally and OI. For the OI to translate into trade volume, Ethereum’s supply has to continue dropping and the transaction volume on spot exchanges needs to go up. This may create a conducive set up for a short term top and boost Ethereum’s price.