When Ether (ETH) hit an all-time price of $ 2,800 on April 29, its futures were also open. The $ 8.5 billion figure represents a 52% monthly increase and shows robust trading activity behind the meteoric rise in prices.
Some analysts might turn down ether derivatives considering that CME’s future has an open interest of $ 355 million, compared to Bitcoin’s $ 2.4 billion. However, ether contracts were only signed a few months ago. Both FTX and Deribit require 100% full KYC for their customers, and these markets together hold an open interest from ETH of USD 2 billion.
Because of this, the outstanding interest in silver futures is currently $ 22.6 billion. The precious metal has decades of trading history and a market capitalization of $ 1.4 trillion. However, simply analyzing the number of outstanding contracts is not really helpful as these can be used for hedging.
The growth in futures is positive but not a guaranteed bullish indicator
To see if the market is bullish it is necessary to review some derivative metrics. The first is the futures premium (also known as the base), which measures the price gap between futures contract prices and the regular spot market.
The 3 month futures should normally trade at an annualized premium of 10% to 20%, which should be interpreted as a lending rate.
As the graph above shows, ETH’s futures premium was insane in mid-April, peaking at 45% on an annual basis. While the trader’s FOMO played a role, it also signaled extreme optimism. While professional traders most commonly use monthly futures contracts, perpetual contracts are the preferred instrument for retail investors.
Retail investors are currently flat
Perpetual contracts are also known as inverse swaps. A funding rate is typically charged for these contracts every 8 hours. This fee increases as longs (buyers) use higher leverage, gradually depleting their accounts. When a retail buying frenzy occurs, the fee can go as high as 5.5% per week.
As the graph above shows, the 8-hour funding rate hit a high of 0.18% on April 14, which is 3.8% per week. This certainly contributed to the extremely bullish monthly futures base, but the effects have completely faded as the funding rate has been negligent for the past few days.
This data suggests that professional traders are more optimistic about Ether compared to retail investors, as the 3-month base is currently 25% per annum. This interest rate is higher than most stable coin operated loans, meaning longs (buyers) are willing to pay a premium to keep their positions open.
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