The most recent development within worldwide cryptocurrency markets is that, while spot markets are declining, futures markets are also beginning to cool off. One key metric that we monitor to gauge the health of the futures market is called open interest. Open interest measures the total number of outstanding futures contracts that have not been settled. Over the past few weeks, open interest has not only been declining but has also been declining at an accelerated rate. This decline has been seen across the board with all of the major cryptocurrencies. Open Interest Plummets Across Major Assets In the past 30 days, the leading cryptocurrencies have seen a pronounced reduction in open interest, indicating less speculative trading and a more subdued futures market. Entailing some of the most substantial declines are Bitcoin ($BTC) and Ethereum ($ETH), albeit for different reasons. While Bitcoin has seen open interest drop by 11.1%, Ethereum’s drop of 23.8% is not simply following in Bitcoin’s footsteps. Solana ($SOL), which had been one of the more high-profile tokens in the past year, saw open interest decline by 6.2%. Memecoins experienced the most dramatic reduction across the board, with open interest plummeting by 52.1%. Futures markets are cooling alongside spot markets, with a sharp drop in open interest (OI) across all major assets. Over the last 30 days: $BTC OI: -11.1% $ETH OI: -23.8% $SOL OI: -6.2% #Memecoins OI: -52.1% https://t.co/ZTBHOv4p0M pic.twitter.com/7PTmRjNEqE — glassnode (@glassnode) February 20, 2025 This decline in open interest can be viewed as a lessening of speculative interest and a pulling back from leveraged positions, especially in the risky parts of the market, like memecoins. The dip in open interest suggests that a significant number of traders have either closed out their positions or have chosen to stay on the sidelines while the market steadies itself—creating a situation with less potential for market manipulation and a reduced chance of seeing sharp price swings. Funding Rates and Short Positions Signal Market Shift The cost of holding a futures position is determined by funding rates, and these rates allow us to see just how much sentiment in the market has changed for the better. In the case of Bitcoin and Ethereum, their funding rates are slightly positive, nudging ever so gently into the territory of being healthily optimistic. The same cannot be said for Solana, which has funding rates that are now negative. This tells us right away that traders in the futures market have a not-so-furtively bearish outlook on Solana and that they are predominantly betting against the token’s price movement. Funding rates for memecoins have fallen sharply and seem to be the best indicator of today’s market environment. These coins, which were all the rage in late 2024 when they staged a rally of 90.2%, have been pummeled and now find their funding rates squarely in negative territory. This indicates that most market participants are shorting the coins and that levered long trades are being forcefully unwound in what has become a highly speculative and much more cautious market segment. Traders have now moved on to other better-risk-adjusted trading opportunities. Price Action Reflects the Cooling Sentiment The evident cooling in sentiment in futures markets is clearly visible in the actual price formations of the major cryptocurrencies. Since February, Bitcoin has fallen by 5.9%, retreating from earlier momentum that aimed for new price discovery levels. Ethereum, which had been riding high recently on upbeat sentiment from network upgrades, has seen a sharper decline, falling 16.9%. Meanwhile, Solana, which reigned lately as one of the more impressive altcoin performers, has traced back an even steeper 33.1% decline. Market's momentum has stalled after an attempt to push #Bitcoin into price discovery. $BTC is down 5.9% since Feb, while $ETH and $SOL have dropped 16.9% and 33.1%. Memecoins, which surged 90.2% in late 2024, have seen the sharpest correction at -37.4% https://t.co/r3bgR1WY9E pic.twitter.com/SFLnwCFn70 — glassnode (@glassnode) February 20, 2025 Memecoins, which had captivated traders and investors, are now experiencing the sharpest correction. Since the end of 2024, the tokens are down 37.4%. Following that corrective trend, it is now believed that Memecoins are just a natural market component, unable to escape the gravity of a trend following downward steps. What will happen next is anybody’s guess. Examining the wider movement of the market since the beginning of 2023, Bitcoin (BTC) has preserved a steady upward movement, always positioned at around 3.4 times its value of April 2023. Solana (SOL), on the other hand, traded at an astounding high of 11.8 times its April 2023 worth but has since fallen back to 7.6 times. Ethereum (ETH) has been less impressive, with its worth veering between 1.3x and 2.0x—indicative of not nearly hitting the higher growth marks of either Bitcoin or Solana. The Market Is Cooling, but What’s Next? The current bullish momentum of major cryptocurrencies and meme tokens appears frail. While Bitcoin definitely has a steady upward path and Ethereum and Solana strive to overcome recent downturns, the risk of high-leverage positions recently played out in a sharp correction across assets viewed as risky. These include the meme tokens that sell for a fraction of a penny. Right now, a lot of traders are taking a more careful, cautious approach. They’re after not-profit-with-loss scenarios—in other words, conditions that are in their favor—with the hope that the market is going to become more stable and adjust to recent, um, turbulence. With reduced open interest and negative funding rates, what are these traders doing? Well, they’re most likely sitting on their hands and waiting—for what, exactly? They want to see the market’s next moves and—most importantly—its next big money-making catalyst. As we progress into 2025, the cryptocurrency market’s power of adaptation will be put to the test. Whether investors or traders, all market participants will collectively hold their breath to see what renewed interest or further cooling signs will surface next. Overall market sentiment remains in beta as the evolving conditions push and pull various sentiment drivers. At the same time, the market’s leading assets, Bitcoin and Ethereum, may serve as principal indicators of the market’s overall movement. It remains to be seen whether these two will hold their fort atop the crypto asset hierarchy, or if up-and-coming assets like Solana and the memecoins will claw back to dominance in the month’s upcoming. Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services. Follow us on Twitter @nulltxnews to stay updated with the latest Crypto, NFT, AI, Cybersecurity, Distributed Computing, and Metaverse news ! Image Source: peshkov/ 123RF // Image Effects by Colorcinch
