Ether (
ETH
) bulls are experiencing a strong upswing as the altcoin’s price has surged by 13% in just seven days, reaching the $3,900 mark for the first time since December 2021. With a current market capitalization of $456 billion, Ether is distancing itself from its competitors. However, the excessive use of leverage in ETH derivatives poses a risk to the current bullish momentum.
Could Ether’s price reach $4,800 in this cycle? Ether bulls believe there is a good chance that the current bull run will culminate in a new all-time high, similar to what Bitcoin (
BTC
) experienced on March 5. However, there is a risk of forced liquidations due to excessive optimism. To determine if $4,800 is a feasible target price for this cycle, we must first address the criticism and fear, uncertainty, and doubt (FUD) that could hinder Ether’s upward trajectory.
In addition to the common criticism that the Ethereum network is not scalable, which has been partially addressed through layer-2 solutions, some analysts point to the dependence on the Ethereum Foundation and the lack of regulatory clarity as reasons holding back Ether’s bullish momentum.
According to Gary Gensler, the chair of the U.S. Securities and Exchange Commission (SEC), cryptocurrencies that allow holders to stake their positions could be considered securities, as they “look very similar — with some changes of labeling — to lending.” However, the decision on the spot Ethereum exchange-traded fund (ETF) on May 23 could settle the debate, with analysts estimating a 50% to 70% chance of approval.
While there is some validity to the criticism of centralization, a report from Electric Capital shows that the number of developers entering the Ethereum ecosystem in 2023 increased by 16,700, nearly four times more than the influx to Solana. This makes it increasingly difficult to argue that Ethereum’s development is concentrated in a specific set of companies.
The greatest short-term risk for Ether’s price stems from overconfidence among traders using derivative instruments. The total open interest in Ether futures reached an all-time high on March 6, hitting $13.4 billion, indicating significant demand for leverage.
Even more concerning is the Ether futures premium, which measures the price of monthly contracts against levels traded on regular spot exchanges. It has reached its highest point in over 18 months.
The Ether futures premium surpassed the 10% neutral threshold on Feb. 12 and recently peaked at 23%, indicating excessive demand for long positions. While this reflects confidence from professional traders following a 68% increase in price year-to-date in 2024, it also increases the risk of cascading liquidations due to intraday volatility.
Similarly, the demand for bullish leverage positions from retail traders has reached its highest levels in over 18 months.
Perpetual contracts have an embedded rate that is typically recalculated every eight hours. A positive funding rate indicates increased demand for leverage longs, and rates exceeding 0.05%, equivalent to 1% per week, signal overconfidence.
None of these issues would be problematic if Ethereum network metrics indicated strength, but the latest data does not support further Ether price appreciation.
Over the past 30 days, Ethereum decentralized applications (DApps) have seen a 6% decline in volume and an 11% decrease in the number of active addresses. In contrast, competitors BNB Chain (
BNB
) and Solana (
SOL
) have experienced a 52% and 71% growth in volume, respectively.
Ultimately, the recent bullishness in Ether price can be attributed to the potential approval of a spot ETF. However, the excessive leverage from both retail and professional traders, more than three months ahead of the decision date, raises doubts about the sustainability of a surge above $4,800.
This article is for informational purposes only and does not constitute investment advice or recommendations. Each investment and trading decision carries risks, and readers should conduct their own research before making a decision.