Here’s why the iShares Ethereum Trust ETF is having a very nice day

As for large-cap cryptocurrencies, Ethereum (ETH 3.67%) remains among the most followed tokens out there. Indeed, there’s a good reason for that — Ethereum is the foundation upon which most of the utility-generating world of decentralized applications is built. Thus, there are plenty of crypto investors who continue to buy dips in the world’s second-largest cryptocurrency when they see volatility creeping into the market.

However, crypto investors who want to navigate the blockchain, create a wallet and trade on a centralized or decentralized exchange are relatively limited. The recent approval of spot ETFs by the Securities and Exchange Commission (SEC) has allowed a wave of institutional and conventional investors to enter this asset through funds such as iShares Ethereum Trust ETF (ETHA 5.13%).

As of 1:45 PM ET on Monday, shares of this ETF were up 4.8% from yesterday’s close and continued the strong momentum seen over the past week. One week to the day, this ETF is now up over 17% at the time of writing.

Open interest continues to grow

As with many top cryptocurrencies, the lack of fundamentals (compared to stocks and other income-generating investments) can be frustrating and cause many investors to look elsewhere for growth. That said, Ethereum’s core utility as the base layer of choice in the blockchain world provides some key fundamentals (active wallets, transactions, etc.) that can be tracked to see how this network works in general. These values ​​have performed positively over the past week as retail investors continue to drive most of the on-chain activity for Ethereum, but that is only part of the story.

One of the most important metrics I track when it comes to highly traded digital assets like Ethereum is open interest. Many investors may already be aware that derivatives trading accounts for a significant amount of the total trading volume for tokens like Ethereum. So when futures open interest hits a 20-month high, as it did over the weekend, many traders and investors take notice.

This surge in futures interest suggests that investors are looking to bet Ethereum with leverage, implying that many see bigger-than-expected moves on the horizon, at least relative to market expectations. With certain macro catalysts supporting such expectations (such as the outsized 50 basis point interest rate cut by the Federal Reserve last week), it is entirely possible that these traders are correct in their views.

Can This Ethereum ETF Continue To Outperform?

We will have to see if the kind of open interest that Ethereum has witnessed of late translates into increased volatility for this token (with upward price pressure). For now, that seems to be the case, if not for the fact that rising bets on derivatives in any asset class can lead to wider market swings over shorter time periods. In a way, it might owe us a self-fulfilling prophecy in this regard.

My short-term expectation for this ETF is that the risk is likely to be tilted to the upside, although this upside potential will come with higher volatility (and thus higher risk). So, as is always the case in the crypto sector, it’s buyer beware for now.