In the past 30 days, Ether (ETH) price decoupled from Bitcoin (BTC) to post a 67.5% gain, while the leading cryptocurrency price has barely moved. Ether’s $3,605 all-time high on May 5 was responsible for boosting the asset’s futures open interest to $10 billion.
This movement brings up some crucial questions as the dominance of Bitcoin’s derivatives markets appears to be challenged at the moment. On May 4, Ether’s aggregate futures volumes surpassed Bitcoin’s for the first time in history.
Volume data from Coinalyze shows that $2.6 billion CME Bitcoin futures traded, along with $1.1 billion in CME Ether futures on May 4. However, Ether’s aggregate volumes led by $87 billion versus Bitcoin’s $81 billion.
Some might argue that volumes aren’t as relevant as open interest, which is a fair assessment. Open interest represents the total number of contracts in play, regardless if they have been traded on a specific date. In that sense, Bitcoin still has double Ether’s $10 billion futures open interest.
The above chart shows Ether futures mind-blowing 117% increase in two months. It is also worth noticing CME’s contracts reaching a $460 million open interest, a seven-fold increase since March.
Ether’s soaring futures volume signals increasing interest from traders
To assess whether the market is leaning bullish, one should analyze its premium. The premium measures the price gap between futures contract prices and the regular spot market. This indicator is commonly referred to as basis and should indicate a 10% to 20% annualized premium.
The stablecoin lending rate is the main reason behind this discrepancy, as futures participants are withholding settlement by opting for derivatives contracts.
The chart above shows that Ether’s futures premium peaked at 45% in mid-April and has since normalized near 25%. This data is very encouraging as it signals that there is not extreme optimism despite the Ether price reaching back-to-back all-time highs.
While some analysts will interpret this data as a ‘glass half full,’ others might say it represents a lack of conviction from professional traders. Regardless of the viewpoint, it is important to account for the impact of the carry trade, which negatively pressures the basis indicator.
Investors aiming for a fixed-income trade will short Ether futures contracts while simultaneously buying spot Ether.
Overall, there seems to be healthy growth in Ether’s futures markets, regardless of how one interprets the data.
As for an eventual Bitcoin open interest ‘flippening,’ this seems a long way from happening. Either way, the overall increase in cryptocurrency derivatives is beneficial for the market.