Ether (ETH) has been on a tear lately, with its price soaring 13% in just one week to reach the $3,900 level – a level not seen since December 2021. The altcoin’s current market capitalization of $456 billion puts it well ahead of its competitors. However, this remarkable rally could be at risk due to excessive leverage in the Ether derivatives market.
While the prospect of Ether hitting a new all-time high above $4,800 is tantalizing for bulls, mirroring Bitcoin’s recent feat, the exuberance surrounding the potential approval of a spot Ether ETF on May 23 has led to overconfidence among traders. This overconfidence is reflected in the all-time high open interest of $13.4 billion in Ether futures and the futures premium reaching a staggering 23%, indicating excessive demand for long positions.
The surge in demand for bullish leverage from retail traders, as evidenced by the elevated perpetual contract funding rates, further underscores the frothy market conditions. Coupled with underwhelming Ethereum network metrics, such as a 6% decline in DApp volume and an 11% contraction in active addresses over the past month, the stage seems set for a potential correction.
While the optimism surrounding Ether’s price trajectory is palpable, the excessive leverage employed by traders could ultimately undermine the sustainability of a rally beyond $4,800, at least in the short term. As the market eagerly awaits the ETF decision, traders would be wise to exercise caution and manage their risk exposure judiciously.
