Cryptocurrency

Bitcoin and Ethereum futures are re-exerting dominance over spot markets

An analysis of Bitcoin and Ethereum futures volumes found that both outperformed spot volumes.

The spot market allows traders to buy and sell tokens for instant delivery. Spot Volume refers to the total amount of coins transferred on-chain, only successful transfers are counted.

In contrast, futures Traders buy and sell derivative contracts that represent the value of a particular cryptocurrency. Experienced traders prefer trading futures because they can profit in either market direction.

Experienced traders use leverage and are generally better capitalized than retail spot traders under “normal” conditions. The futures market tends to have a higher trading volume than the spot market.

Ethereum spot and futures markets

The chart below shows the general trend of Ethereum spot volume lagging behind the futures market. However, the spot market was particularly active from the end of 2021 into the New Year.

Since late June 2022, the gap between futures and spot has widened. Analysts bet this is due to growing speculation about a merge where Ethereum’s existing execution layer will be merged with the Proof of Stake (PoS) consensus layer.

Ethereum Spot and Futures Volume
ETH Futures Volume and Transfer Volume (Source: Glassnode)

Bitcoin spot and futures markets

An analysis of the Bitcoin spot and futures markets paints a different picture. The chart below shows futures volume holding a significant lead heading into the 2021 bull market. However, as BTC price peaked in his Q4 2021, this scenario reversed and spot volume took over.

Since June 2022, futures traders have reclaimed their positions, leading to a resurgence of futures volumes above spot volumes.

Bitcoin spot vs futures chart
Futures to spot ratio BTC (Source: Glassnode)

BTC to ETH ratio

The futures/spot ratio is a line chart representation of the above. Bitcoin’s futures/spot ratio was significantly higher than Ethereum’s through the first half of 2021.

Both ratios sank, followed by a lull that moved in close correlation. However, the Ethereum futures/spot ratio has risen compared to the BTC ratio since June 2022 due to price speculation at the upcoming Merge event.

BTC and ETH futures/spot ratio
Futures to spot ratio, BTC and ETH (source: Glassnode)

The rebound in BTC and ETH futures trading volumes suggests that derivatives traders have returned to speculating in risky assets. This indicates that derivatives traders assume that the Terra collapse-affected leverage has moved away from the market.

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