Does the massive return of leverage threaten the recent rally?

On September 6, the open interest of altcoins surpassed that of Bitcoin for the first time since December 2024. This shift indicates the rise of leverage on Zcash, XRP, and Solana. However, this alone does not signal an altseason.

In brief

• The open interest of altcoins exceeds that of Bitcoin for the first time since December 2024.
• Bitcoin still represents nearly 37% of the open interest in perpetual contracts.
• Zcash, XRP, and Solana account for a notable share of the leverage increase.
• ZEC reached nearly $2.4 billion in open interest after a significant surge in its price.
• The rise in leverage increases the risk of cascading liquidations on altcoins.

Leverage shifts to altcoins

Now, perpetual contracts on altcoins have a higher value than those on Bitcoin. The open interest for BTC was around $23.9 billion, which is 37% of the total observed.

Indeed, open interest determines the value of derivative contracts that remain open. It increases when new positions appear and decreases if traders close their contracts and face liquidations. Unlike volume, it does not solely count transactions made during a period.

Four elements are necessary to interpret this shift:

• Altcoins surpass Bitcoin for the first time since December 2024;
• Bitcoin retains about 37% of the open interest in perpetual contracts;
• Ethereum, Solana, XRP, and Zcash account for a significant portion of the remainder;
• An increase in the indicator counts both long and short positions.

The bullish signal's scope is limited by this last point. Thus, the open interest of altcoins reveals that traders are taking more risks on these cryptos. It does not indicate whether the majority anticipates a rebound or a decline.

Its value expressed in dollars can also evolve mechanically when asset prices rise. Therefore, it is essential to compare its progression with prices, funding rates, and spot market volume.

Zcash concentrates a portion of speculation

The most spectacular case is represented by Zcash. At the beginning of September, the open interest of ZEC approached a record near $2.4 billion, according to reported data. Meanwhile, the crypto surged by 134% in a month to temporarily exceed $1000.

Such a progression caught many short sellers off guard. Nearly $34 million in short positions were liquidated during the breach of $1000 on September 4.

Many positions remain highly exposed. On Hyperliquid, a short position opened by trader Garrett Jin around $444 revealed a latent loss of $25.7 million. Another seller faced liquidation when ZEC approached $1317.

XRP and Solana also contribute to the increase in open interest for altcoins. However, the available statistics do not truly attribute each asset's contribution to the overall surpassing of Bitcoin.

Movements can be amplified by such concentration. A rapid rebound forces sellers to buy back their positions, supporting prices. Conversely, a drop can trigger cascading liquidations among buyers.

The market has not yet entered altseason {#h-the-market-has-not-yet-entered-altseason}

However, it is essential to emphasize that the precedent from 2024 calls for caution. Following the last surpassing of Bitcoin by altcoins, many mid-cap cryptos experienced significant corrections. This succession does not prove that the shift in open interest systematically triggers a decline.

The altcoin market, however, holds lower liquidity. A significant liquidation can therefore weigh more heavily on their prices than on Bitcoin's, especially if order books cannot absorb forced sales.

Other indicators do not yet confirm a global altseason. The Altcoin Season Index was at 43 at the end of August, while Blockchain Center sets the confirmation threshold at 75. Additionally, global interest in the term "altcoin" was only around 26 out of 100 in Google Trends.

Bitcoin also maintained a dominance of nearly 59.2% of the crypto market. Moreover, altcoins outside the top 10 had indeed gained over 10% since the beginning of September, with a valuation exceeding $200 billion. However, this evolution remained concentrated on a limited number of cryptos.

Liquidations, funding rates, and spot volumes will now determine the strength of the movement. A rise driven solely by leverage would remain vulnerable to a sharp correction.