Bitcoin has been treading water lately. For those watching the charts, it feels like a quiet moment. Yet, beneath this calm, some serious currents are stirring. An analyst at K33, Vetle Lunde, points to a cocktail of high leverage and a sudden shift towards Ethereum. This mix could spell trouble for the leading cryptocurrency.
- Bitcoin’s market is showing signs of high leverage, with open interest in perpetual futures reaching a two-year high, suggesting potential vulnerability to sharp downward moves.
- Ethereum has experienced a significant capital rotation, with a large BTC to ETH swap propelling it to a new all-time high and shifting market momentum.
- While Ethereum’s short-term performance is strong, its longer-term trend against Bitcoin remains weak, and historically, ETH all-time highs have sometimes signaled broader market tops, though Bitcoin’s dominance is currently high.
Lunde, K33’s Head of Research, laid out his concerns in a recent report. He suggests Bitcoin’s recent price weakness might not be over. The market, it seems, has built up a significant amount of risk, leaving it vulnerable to a sharp move downward.
One big red flag is the notional open interest (the total value of outstanding contracts) in Bitcoin perpetual futures. This figure has soared to a two-year high, topping 310,000 BTC. That’s roughly $34 billion, a hefty sum by any measure.
Think of it like this: when too many people bet heavily on one direction, the market gets wobbly. This open interest jumped by over 41,000 BTC in just two months. A particularly sharp spike of 13,472 BTC happened over a single weekend, which Lunde sees as a potential turning point.
Adding to the tension, the annualized funding rates have also shot up. They climbed from a modest 3% to nearly 11%. These rates are basically the cost of holding a long position in perpetual futures. When they’re high, it means traders are paying a lot to keep their bullish bets open, suggesting aggressive buying even as prices stay flat.
Lunde notes these conditions echo similar leverage build-ups we saw in the summers of 2023 and 2024. Both those periods ended with sharp liquidation cascades, where prices dropped quickly, forcing traders to close their leveraged positions at a loss. It’s a painful cycle for many.
This time, the peak in open interest arrived later in the month. This might mean a more drawn-out period of price consolidation, a kind of holding pattern. Such a scenario could catch “dip buyers” (those hoping to buy at a low point) off guard, as the market takes its time to clear out the excess leverage.
“The risks of long squeezes in the near term are elevated,” Lunde warned. A long squeeze happens when prices fall, triggering automatic sales of leveraged long positions, which then pushes prices even lower. It’s a cascade effect. For now, Lunde advises a cautious approach, suggesting conservative positioning until the market finds its footing.
Ethereum’s Sudden Surge
As Bitcoin grapples with its leverage issues, Ethereum has been making headlines. A “huge” rotation of capital recently shifted the spotlight. A long-term holder, often called a whale in crypto circles, swapped a massive 22,400 BTC for ETH. This move happened last week through a decentralized exchange (DEX) called Hyperunit.
This significant trade helped propel Ethereum to a new all-time high of $4,956 over the weekend. It marked the end of a long, 1,380-day drawdown for ETH against the dollar. For many, it felt like a changing of the guard, flipping market momentum squarely towards Ethereum.
The ETH/BTC ratio, which measures Ethereum’s value relative to Bitcoin, also surged. It climbed above 0.04 for the first time in 2025. This jump clearly underscores Ethereum’s current strength compared to Bitcoin. It’s a metric many traders watch closely to gauge which asset is leading the pack.
However, it’s not all sunshine and rainbows for Ethereum’s relative performance. Despite its strong rally against the U.S. dollar, its longer-term trend against Bitcoin still looks weak. Lunde pointed out that the 1-year, 2-year, and 3-year rolling ETH/BTC returns remain in negative territory. This suggests that while ETH had a great week, it still has ground to make up over longer timeframes.
Here’s a look at how different assets have performed year-to-date:
Historically, Ethereum reaching new all-time highs has often signaled broader crypto market tops. We saw similar patterns in past cycles, specifically in 2017 and 2021. The sequence usually goes like this: Ethereum breaks out, then other altcoins (alternative cryptocurrencies) see big gains, while Bitcoin tends to stagnate as demand shifts away.
This pattern naturally sparks concerns. Many in the market wonder if the current crypto bull market is nearing its end, following this familiar script. It’s a question that keeps a lot of us up at night, trying to read the tea leaves of market history.
Reading the Broader Market
But there’s a counter-argument to the “end of the bull market” theory. Bitcoin’s dominance, which measures its share of the total crypto market capitalization, remains quite high. It sits at 58.6% currently. This is a far cry from the sub-40% levels seen during prior market peaks, when altcoins truly went wild.
Lunde weighed in on this point. He stated, “Thus, while the relationship between former ETH ATHs and BTC is concerning, we’ve yet to reach a situation that significantly points toward broad altcoin froth.” In plain terms, while Ethereum’s surge is notable, the market isn’t yet showing the kind of widespread, speculative frenzy in smaller coins that usually marks a top.
Meanwhile, institutional money flows continue to show a cautious attitude. Traders on the CME (Chicago Mercantile Exchange), a key venue for institutional crypto derivatives, have reduced their Bitcoin exposure. The options markets, too, have turned defensive. Longer-dated skews (a measure of demand for options that protect against price drops) have entered positive territory for the first time since 2023. This suggests big players are buying more protection against future price declines.
Ethereum futures, however, tell a different story. They are trading at a double-digit premium, meaning the future price is significantly higher than the spot price. This indicates strong demand. ETH futures have also outpaced BTC futures since early August. This strength is partly fueled by substantial inflows into Ethereum exchange-traded funds (ETFs) and accumulation by corporate treasuries.
So, we have a fascinating split. Bitcoin faces leverage risks and cautious institutional sentiment. Ethereum enjoys a surge, driven by a whale and institutional interest. As Ethereum’s relative strength matures, traders are bracing for a crucial question: will this cycle follow the historical playbook, or will it diverge entirely? Only time, and perhaps a few more market twists, will tell.
