Premium on Ethereum futures rises as investors switch preference from Bitcoin, JPMorgan

  • Institutional investors are increasingly abandoning Bitcoin futures for Ethereum futures.
  • The market shift is bearish for Bitcoin (BTC) by a huge win for Ethereum (ETH).

Ethereum futures are presently trading at a premium as investors increasingly shift interest from Bitcoin futures to Ether-based products, according to analysts from American Banking Giant JPMorgan.

The analysts revealed on September 22 on a note to investors that Bitcoin futures on derivatives trading platform Chicago Mercantile Exchange (CME) have traded at a discount compared to BTC’s spot prices throughout September.

Meanwhile, Ethereum products have become more popular among investors, leading Ether futures to trade at a premium. The switch indicates that expectations for the Ethereum ecosystem are rising as it continues to develop and attract more opportunities and investments.

While this is good for the price of Ether, it is a setback for Bitcoin since it reflects decreasing demand for BTC from institutional investors. During favorable market conditions, BTC futures trade higher than the actual price of the crypto asset on the spot market. The premium covers the costs and complexities of storing Bitcoin. High yields on futures contracts are also an incentive for investors to buy BTC futures at a premium.

The move to Ethereum futures has been noticeable since August. CME data shows that the 21-day exponential moving average (EMA) premium for Ethereum futures spiked 1 percent over the actual ETH market price. The analysts said that the development indicates a strong divergence in demand, adding that the market changes are bearish for Bitcoin.

This points to much healthier demand for Ethereum vs. Bitcoin by institutional investors.

Volumes across major markets for bitcoin futures soared 17 percent to $1.73 trillion in August from July’s $1.47 trillion, the Block Research data shows. Bitcoin options volume also increased 66 percent from 10.72 billion to $17.79 billion.

Leading Crypto exchange Binance, traded over $24 billion in BTC futures volume in the last 24 hours, followed by Okex at around $ 7.4 billion, according to data by Skew Analytics. Binance also leads in volumes of Ethereum futures, amounting to an approximate daily volume of $10 billion.

Futures contracts effect on market trends

 Bitcoin futures contracts are agreements between two traders who agree to buy or selling bitcoin at a predetermined price at a specified date in the future. The settlement period varies depending on the exchange, including daily or monthly. Futures can also be settled in either cash, as on CME, or physically on exchanges such as Bakkt.

Analysts in the cryptocurrency market have used open interest in the past to speculate on the possible effects on the price of Bitcoin. Open interest refers to the number of outstanding contracts awaiting settlement of both long (buyers) and short (sellers) traders.

When the open interest is rising concurrently with the underlying asset’s price (in this case, Bitcoin), the market is said to be bullish. Price rises when buyers dominate sellers and falls when the sellers dominate the buyers.

Meanwhile, Bitcoin continues to lose ground after dropping 4.2 percent in the past 24 hours and 11.6 percent in the last seven days to trade at $42,881 at the time of press.  On the other hand, Ethereum’s performance is currently worse than BTC’s. Ether has slipped below the $3,000 price level after losing 8.2 percent on the day. The performance also indicates a 7-day drop of 2 percent, but yearly gains stand at 793.6 percent, compared to Bitcoin’s 314.5 percent.

About Author

I am a finance journalist and inspiring technopreneur with three years of experience in blockchain/crypto info dissemination. I write to inform both existing and potential crypto technology adopters with an added commitment to contribute to the advanced realization of blockchain in real-life use cases.

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