By
Temitope Olatunji
April 29th, 2024
The recent spurt of institutional interest in Ethereum comes as the network proceeds to a major Dencun upgrade scheduled for mid-March.
Institutional interest in Ethereum is on the rise as the daily open interest for Ethereum futures on crypto exchanges Bybit and Binance, touched an all-time high. As a result, Ethereum (ETH) price jumped 4% for the second consecutive day, shooting past $3,200 with its market cap at $387 billion.
Data reveals that, among the leading five derivatives exchanges, all except the Chicago Mercantile Exchange (CME) have attained record highs in daily open interest for ether futures. Notably, Binance has seen a surge in open interest, peaking at over $3.30 billion, while Bybit has reached $1.94 billion.
An analyst interprets this substantial rise as a sign of increasing confidence and engagement in ether futures trading, underscoring ether’s appeal to traders enticed by the potential for larger returns in more volatile markets.
Photo: The Block
Ruslan Lienkha, Chief of Markets at YouHodler, told The Block:
“The significant surge in open interest in ether futures indicates heightened interest from risk-oriented traders in leveraged positions seeking greater volatility.”
On the other hand, Ethereum has also been facing heightened price volatility in recent times. Over the past fortnight, Ether has experienced an average daily price fluctuation of 2%, double that of Bitcoin’s average daily movement. The Block’s Data Dashboard reveals that Ethereum’s on-chain volume has surged to a multi-month peak as well. Daily transaction volume on the Ethereum network has escalated from a low of $1.26 billion in early October 2023 to a current multi-month high of $4.2 billion.
Key Ethereum Events Leading to Price Rally
Expectations regarding the potential approval of spot Ether ETFs this spring, along with the impending Dencun upgrade, are further stimulating on-chain activity, according to Lienkha.
The Dencun upgrade is set to unveil functionalities such as blob transactions and transient storage. It facilitates the utilization of off-chain “data blobs” to integrate additional data into Ethereum transactions without causing delays in block processing times.
Furthermore, the Dencun upgrade holds great importance to all the Layer-2 DeFi tokens present on Ethereum. The EIP-4844 proposal implementation that will come along with the Dencun upgrade will work on reducing the transaction fee for all the Layer 2 protocols. As a result, a majority of the L2 Defi tokens on Ethereum have registered strong price gains recently. In a research report on Monday, February 26, Bernstein analysts Gautam Chhugani and Mahika Sapra wrote:
“With the growth of ETH transaction fees based on higher blockchain activity (more DeFi, NFTs, tokens), more ETH holders are incentivized to stake their ETH. And as financial smart contracts on Ethereum Layer 2 networks scale (Arbitrum, Optimism and Polygon), more ETH finds itself locked in smart contracts, leading to a reflexive feedback loop of increased demand.”
Currently, the total ETH held on exchanges is at an all-time low of just 11% of the total supply. A large amount of ETH remains locked in DeFi smart contracts, staking pools, and other Layer-2s.