As Ethereum (ETH) edges closer to the $4,000 threshold, marking a surge of 13% within a week, cautionary signals are emerging. Its remarkable climb has propelled its market capitalization to an impressive $456 billion, setting it apart from its competitors. Nonetheless, the significant reliance on ETH derivatives among traders could potentially pose a risk to the ongoing bullish trend.

Many traders anticipate Ethereum to follow in Bitcoin's footsteps, possibly reaching new all-time highs. However, the possibility of forced liquidations driven by excessive optimism looms large. Ethereum faces criticism for its scalability issues, although some progress has been made with layer-2 solutions. Additionally, Ethereum's reliance on its foundation and regulatory uncertainties remain hurdles.

Gary Gensler, chair of the U.S. Securities and Exchange Commission (SEC), has suggested that cryptocurrencies allowing holders to stake could be deemed securities, akin to lending. The pending decision on a proposed Ethereum exchange-traded fund (ETF) on May 23 is anticipated to be pivotal in resolving this matter, with analysts estimating a 50%-70% chance of approval.

Amid these developments, the prevailing optimism among Ethereum traders, particularly those engaged in derivative trading, poses a significant short-term risk for the crypto market. Ether futures have hit record highs, with the premium on these futures reaching its highest level in 18 months, reflecting a strong demand for long positions. While this underscores the confidence of professional traders, it also implies potential risks of large-scale liquidations due to intraday volatility.

Furthermore, the surge in demand for bullish leverage positions from smaller investors has also reached unprecedented levels, adding further complexity to the Ethereum market. Monitoring Ethereum network metrics, particularly its ability to support continued Ether price growth, remains crucial. Over the past month, Ethereum DApps have experienced a decline in volume, and the number of active addresses has decreased by 11%. The potential approval of the proposed Ethereum ETF has been cited as a key driver behind Ether's recent price surge.