As Ether (ETH) won $ 2,800 for all time on April 29, its futures sparked interest. The figure of 8.5 billion dollars marked a 52% increase per month and shows stable trading activity behind the meteoric rise in prices.
Some analysts may dismiss the ether derivatives, given that the future of CME has $ 355 million in open interest compared to $ 2.4 billion for Bitcoin. However, the Ether contracts started only a few months ago. Both FTX and Deribit require 100% full KYC for their customers, and these markets have a total of $ 2 billion in ETH open interest.
For this view, open interest in silver futures is currently $ 22.6 billion. The precious metal has a decades of trading history and a market capitalization of $ 1.4 trillion. However, a simple analysis of the number of outstanding contracts is not really useful, as they can be used for hedging.
Futures growth is positive, but a bullish indicator is not guaranteed
To assess whether the market is sloping upwards, there are several indicators for derivatives that need to be reviewed. The first is the futures premium (also known as the basis), which measures the price difference between the prices of futures contracts and the regular spot market.
3-month futures usually have to be traded at a 10% to 20% annual premium, which should be interpreted as an interest rate.
As shown in the chart above, the ETH futures premium went crazy in mid-April, peaking at 45% year on year. Although the FOMO of traders played a role, it also signals extreme optimism. While professional traders most often use monthly futures contracts, perpetual contracts are a tool for retail investors.
Currently, retail investors are not equal
Fixed-term contracts are also known as reverse swaps, and these contracts have a funding rate that is usually charged every 8 hours. This fee increases as debts (buyers) use higher leverage, so their accounts are drained little by little. When it comes to retail shopping, the fee can go up to 5.5% per week.
As the chart above shows, the 8-hour funding rate recently reached 0.18% on April 14, equivalent to 3.8% per week. Although this has certainly contributed to the highly optimistic monthly futures base, the impact has completely disappeared as the funding rate has been negligible in the last few days.
These data show that compared to retail investors, professional retailers are more bullish with Ether, as the 3-month base is currently 25% per year. This rate is higher than that of most stable coin lending services, which means that longing (buyers) are willing to pay a premium to keep their positions open.
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