Ethereum (ETH) has seen a significant surge, with its price increasing by 13% in the last seven days, hitting $3,900 for the first time since December 2021. This rally has propelled Ethereum’s market capitalization to $456 billion, setting it apart from its competitors. Despite this bullish trend, the extensive use of leverage in ETH derivatives is raising concerns about the potential for a market correction.
Can Ethereum Surpass $4,800?
There’s speculation that Ethereum could reach new heights, potentially surpassing $4,800, akin to Bitcoin’s recent performance. However, this optimism is tempered by the possibility of forced liquidations due to excessive leverage. Ethereum faces several challenges, including scalability issues, dependence on the Ethereum Foundation, and regulatory uncertainty, particularly regarding the classification of staking as a security by the SEC. The upcoming decision on an Ethereum spot ETF on May 23 could significantly influence its price, with analysts estimating a 50% to 70% chance of approval.
Despite these concerns, Ethereum continues to attract a substantial number of developers, with a 16,700 increase in 2023, suggesting a broadening of its development base beyond a few centralized entities.
Risks from Derivative Markets
The enthusiasm for Ethereum has led to record-high levels of open interest in Ether futures, reaching $13.4 billion. This surge in leverage is evident in the Ether futures premium, which has reached its highest point in over 18 months, indicating a strong demand for long positions. While this showcases confidence, it also increases the risk of significant liquidations if the market experiences sudden volatility.
The aggressive positioning in bullish leveraged trades, particularly among retail traders, is also a concern. The positive funding rate in perpetual contracts suggests an overconfidence in the market, potentially leading to a precarious situation if Ethereum’s price does not continue to rise.
Ethereum’s Ecosystem and Competitors
In contrast to the bullish sentiment, Ethereum’s decentralized applications (DApps) have seen a decrease in volume and active addresses, with a 6% decline in volume and an 11% reduction in active addresses over the past 30 days. Meanwhile, competitors like BNB Chain and Solana have experienced significant growth in volume, indicating a shift in user activity.
