The price of Ethereum unexpectedly collapsed on May 24, sending the coin below last week’s lows towards the psychological $1,800 level.
After this dump, on-chain data from Coinanalyze reveals a sharp drop in open interest, indicating that some traders were unaware and had to exit their positions.
Drop open interest in Ethereum
On May 24, ETH’s express interest It reached $5.2 billion on all major cryptocurrency exchanges like Binance and OKX. Of this, $4.7 billion is from perpetual futures, while less than $450 million is from futures.
In cryptocurrency derivatives trading, open interest is the total number of open positions. These trades can be long or short and can be drawn from the perpetual forwards and futures contracts of the leading platforms.
Since they are derivatives, open interest positions are often leveraged, which means that the trader borrows money from the exchange to trade a larger lot size. In this way, the traders have to set aside the collateral, which is the margin, to finance the trade.
Depending on the size of the trading lot and the leverage used, there can be ‘margin calls’. Here, when the price of the underlying asset moves against its expected direction, the exchange can sell the security to protect itself if the trader does not increase their margin.
On May 24, ETH prices, in line with the general trend across crypto markets, fell by around 5%, dropping from highs of $1875 to $1775. This reversed the gains made in the previous two weeks, sending the currency lower in conjunction with losses from late April and early May 2023.
As a result of this correction, Coinalyze data shows that open interest in Ethereum deals collapsed by 7.3%.
There are now $5.2 billion worth of ETH derivatives deals, most of them on Binance, the world’s largest cryptocurrency exchange.
Binance holds $2.1 billion worth of ETH as of this writing on May 24, while OKX and Bybit each hold $1.1 billion and $1 billion, respectively.
There are approximately $189 million in open positions in ETH on dYdX, a decentralized exchange (DEX).
Based on the available data, traders still prefer custodial cryptocurrency exchanges when trading Ethereum derivatives. There are non-conservative options like dYdX that are gaining momentum.
Liquidate millions of ETH Longs
Coinalyze data also shows this Just $18.7 million of “long” ETH positions have been liquidated by exchanges in the last 24 hours.
In all, there were $22.4 million worth of liquidations, which indicates that most traders are bullish, expecting higher prices in the coming days.
Ethereum prices are bearish, shrinking in the past day and extending losses from late April when the coin surged to $2,100 despite positive on-chain data flow.
As of May 25th, the total amount of ETH stack, which secures the Proof of Stake network, is at register above $41 billion.
Featured image from Canva, chart from TradingView