Ether-Derived Volumes Exceed Bitcoin Before Merger; here’s why

Derivatives volumes tracking ether (ETH) have risen nearly 10% in the past month and are now leading those of bitcoin (BTC), according to a report by Kaiko, citing data from several crypto exchanges .

In the total addressable ether and bitcoin futures market, ether now represents 57% from 45% on August 1. Open interest – or the number of unsettled futures contracts – soared to more than $8.43 billion this week, from less than $4 billion in July, the data shows. This suggests that over the past few weeks, Ether prices have been pushed higher due to the heavy use of leverage.

Term data The last 24 hours shows that ether futures exceeded $35 billion in total volume, compared to $32 billion on bitcoin futures, which typically see the highest volumes.

Interest in ether futures likely stems from traders positioning themselves ahead of the Ethereum merger expected later this month – a catalyst that changed market dynamics for ether and caused price fluctuations.

Funding rate data suggests that a significant portion of this open interest could come from short trades or positions that bet against rising prices. Funding rates are periodic payments made by traders based on the difference between prices in the futures and spot markets.

Depending on their open positions, traders will pay or receive funding, and payouts ensure that there will always be participants on both sides of the trade.

According to Kaiko analyst Conor Ryder, these short trades are growing in popularity as investors bet on either an unsuccessful or delayed transition to proof-of-stake or on hedging their long ether positions ahead of The Merge. The latter reason is increasingly becoming a favored bet among investors, Ryder said, as some anticipate the possibility of an Ethereum fork and possible airdrop of a new ETHPOW token.

“A strategy also doing the rounds in ETH short futures has been to go long ETH, short futures and leave yourself eligible for any ETHPOW airdrop,” Ryder wrote. “Think of it as a dividend strategy, eliminating all price risk by going long and short futures, but collecting a potential dividend in ETHPOW.”

ETHPOW futures markets priced the potential token at $18, just 1.5% of the current value of ether, as reported.

The merger shifts Ethereum from a proof-of-work mechanism to a proof-of-stake design, after which the network will rely on “participants” to process transactions instead of miners. This would theoretically increase the speed and security of the network, while significantly reducing the energy requirements needed to run the current Ethereum blockchain.

The event is further expected to slow the rate at which Ether is emitted, especially in the months immediately following the shift. As issuance slows, the blockchain’s token-burning mechanism will continue to pull ether out of circulation at the same rate as before the merger.

Over time, this could reduce the total supply of Ether in the market and eventually cause prices to rise with growing demand. However, some traders remain skeptical about the medium-term price development of Ether.

Ether is trading at just under $1,600 at the time of writing and is up 3% in the last 24 hours. the data shows.