What happened to the Ethereum rally? Demand falls, but The Merge could revive it

Ether's open interest (quotation ETH), which hit an all-time high a week ago, began to retire in September. Open interest is defined as the volume of open positions over a specified period of time in a financial options contract, in this case ETH. 

At the same time, the price of ETH has depreciated by 25% from the high of $ 2.000 reached in mid-August, after hitting an annual low in June. At the time of this article's publication, the price is US $ 1.500. Although its trading volume has seen a 34% increase in the past 24 hours, according to CoinMarketCap.

The Merge, the Ethereum update

These movements show that demand for ETH has declined in the derivatives market, although there still appears to be some interest in commercials. Additionally, its funding rate has moved slightly into positive territory in recent days, which could be a bullish indicator for the post-The Merge, Ethereum update.

The funding rate is a mechanism that keeps the perpetual futures contract price close to the index price. It can serve as a sentiment indicator. When it is high, there is a strong interest in long leverage trades, while if it is low or negative it shows the opposite.  

Kaiko, provider of cryptocurrency data to institutions, said: “This could indicate that sentiment towards ETH before the merger is improving among futures investors as the focus shifts from risk hedging before the merger. to a more optimistic outlook after the merger ".  

But he added that, relative to bitcoin (BTC) funding rates, sentiment surrounding ETH in perpetual futures markets "is consistently more bearish." He attributed this result to the "non-zero possibility of merger failure". Although it is worth noting that its open interest reached an all-time high days ago, while that of bitcoin has not surpassed its peak since October 2021.  

Ethereum could support bitcoin and other cryptocurrencies in September 

Add to this the fact that September has historically been a loss month for markets in general. Although Kaiko points out that this decline seems to affect cryptocurrencies even more, with bitcoin and ether recording the most marked drops. 

Explanations for the so-called "September effect" range from increased spending needs after the summer holidays to tax sales and portfolio rebalancing before the end of the fiscal year for mutual funds - Kaiko, a cryptocurrency data provider for institutional investors and companies. 

The data agency also noted that assets remain under pressure as the Fed's quantitative tightening reaches its peak in September. However, he indicated that if the merger with Ethereum goes smoothly, it could provide "some support" to cryptoassets. In this way, they would be released from macroeconomic headwinds.