Ethereum has registered a new all-time high of $7.8 billion on open interest in perpetual futures contracts as the entire crypto market continues to witness an increased interest in crypto derivatives. The current market favors those buying the contracts, which explains why many people are taking leveraged positions, according to Glassnode analysts. 

Smart investors buy and hold a perpetual future contract when they anticipate the price of the crypto or commodity to go up. They sell it when anticipating a price drop. Only that it is a mere bet on the price change over time and thus the trader does not own the actual commodity or crypto. Traders can magnify their profits or losses by taking leverage or borrowed funds to buy or sell the contracts, based on the amount of their capital.

According to the analysts, the huge interest in leveraged trading being witnessed currently in the market calls for caution among traders just in case liquidation hits hard.

“Whilst the supply dynamics in spot markets continue to show strength, caution, and awareness is appropriate when of high degrees of leverage has entered derivatives markets. The combination of positive funding rates and high open interest can be an important indicator set for assessing a shorter-term risk of cascading long liquidations.“

The previous record on open interest perpetual futures was set in May this year as prices went past the roof. It also came just before a huge crypto sell-off that saw Ethereum’s price dropping from slightly above $4,100 to below $2,000 per coin in less than two months.

At the same time, the funding rate for the Ethereum perpetual futures, which is the periodic payments made to traders based on the difference between perpetual futures price and spot market price, is also at an all-time high of 0.02%, a level that was before the May sell-off.  

Bitcoin, on the other hand, continued to soar high this week and has so far recorded a 7.70% in weekly price gains. There was renewed optimism that seems to be backed by strong on-chain data as institutions and many top-level investors have been accumulating for quite some time now.

Yet more people are also becoming interested in Bitcoin derivatives markets. Open contracts on Bitcoin perpetual futures are at a new 4-month high of $11.8 billion, and the trend is set for a peak of 15 billion reached in April, according to Glassnode.

The funding rate of 0.03% also coincides with the level it was just before the May sell-off.

“Whilst this level of positive lean is not overly high relative to levels seen in Q1 and Q2, it is similar to the funding rate seen just before the May sell-off. This could create a shorter-term headwind if longs are squeezed out of their positions.”