Trading volume for Ethereum derivatives surpasses Bitcoin

Ethereum derivatives trading grew by about 10% in the past month in anticipation of the merger, taking up 57% of the combined trading volume for bitcoin and ether futures.

In the last 24 hours alone, over $35 billion was traded in ether futures, compared to $32 billion in bitcoin futures. Furthermore, open interest, or the number of ether contracts that have not been settled, has nearly doubled to $8.43 billion this week. For the month of September 2022 to date, the total derivative volume traded for ether is around $87 billion, compared to roughly $67 billion for bitcoin, data from Coinglass shows.

Futures contracts are agreements to buy or sell an asset at a predetermined price sometime in the future. In the case of ether futures, ether becomes the asset. Contracts can be settled either by physical delivery or cash transfer. For example, when a futures contract expires, the buyer can receive physical ether from the seller, or they can accept cash and settle the contract.

Data for financing rates suggest the possibility of buying futures

According to an analyst from Kaiko, a provider of crypto trading data, most traders are clear strategies in light of the upcoming merger. Investors are taking short positions, hinted at by data on funding rates, anticipating that there may be problems with the merger while taking long positions in ether to neutralize price risk. Funding rates are payments made by traders based on the difference in price between a futures contract and the spot price of its underlying asset. A negative funding rate indicates that traders expect the market to go south, but also provides a buying opportunity for futures.

Some traders are also making themselves eligible for the airdrop of new tokens from a proof-of-work Ethereum fork that some developers are reportedly working on.

If the merger is successful, this will result in a slower issuance pattern for Ethereum, reducing the number of Ether in circulation and ultimately increasing its price. This deflationary action can reduce the volume of investors holding short positions when prices rise, reducing the current driver of futures trading.

Despite the bearish outlook for bitcoin, positive market signs have emerged

While bitcoin’s future is not tied to any software upgrade, the prolonged bear market may see an increase in short positions in the near term.

But institutional interest in bitcoin has grown amid the bear market. BlackRock, the world’s largest asset manager with over $1 trillion in assets under management, recently launched a spot bitcoin private trust for institutional clients. One industry executive believes this is a sign of how much cryptocurrency has matured as an asset class.

The Chicago Mercantile Exchange recently launched euro-denominated bitcoin and ether futures products.

VanEck filed an application to launch a spot bitcoin exchange traded fund in July, which the Securities and Exchange Commission has delayed. Grayscale, which runs an Ethereum trust, recently filed a lawsuit against the SEC to reject the conversion of its bitcoin trust into a spot ETF.

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