Ethereum becomes derivatives market's new favorite as traders ditch Bitcoin

Ethereum price downtrend that began three months ago is continuing this week despite the fake-out rally.
Since the fake rally, derivatives markets have seen an increase in ETH open interest, while Bitcoin is witnessing a sharp drop in its OI.
The positive sentiment that hit a five-month peak, if sustained, would suggest increased bullishness for ETH.

While Bitcoin may be the oldest and most widely known cryptocurrency in the world, Ethereum is right at its tail. The second biggest crypto asset has, time and again, found preference among crypto investors and traders over BTC, and the same is happening once again after the recent spot BTC ETF debacle.

Ethereum gains traders' interest

Ethereum, since the beginning of October, has been maintaining a distant following to Bitcoin in the derivatives market. The total open interest (OI) for BTC is averaging around $6 billion, while in the case of ETH, the same is $2.8 billion.

According to Santiment, while ETH did not take over BTC in terms of open interest, it did eclipse Bitcoin in terms of interest. Bitcoin's OI has declined by more than $270 million to touch $5.7 billion following the recent BTC fake-out rally triggered by the false news of an approved spot Bitcoin ETF.

But that translated into good news for Ethereum as it gained some of the lost interest in Bitcoin. The OI in the case of ETH increased by more than $93 million, coming up to $2.8 billion.

This situation was also observed back in September towards the end of the month when BTC OI dropped, and Ethereum OI rose. This resulted in an increase in Bitcoin price, which shot up by more than 4.5% in the span of 24 hours.

Bitcoin and Ethereum Open Interest

Should history repeat itself, BTC could see some increase or sustained sideways movement around the current trading price of $28,310.

Ethereum needs investors' support

While Ethereum may be the traders' new favorite asset, it still needs to ensure sustained support from the rest of the ETH holders. According to the weighted sentiment, the optimism surrounding ETH has been declining since the beginning of the month, averaging borderline pessimism.

Ethereum weighted sentiment

This is also evident in the active addresses noted on the network. The ETH holders that have been conducting transactions on-chain have been averaging under 380,000 on a daily basis, noting a slight decline from the average of 400,000 in August.

Ethereum active addresses

Improvement in these regards would also suggest an improvement in the interest of investors in Ethereum, which would support a potential recovery for the asset, pushing it back above $1,600.

Open Interest, funding rate FAQs

How does Open Interest affect cryptocurrency prices?

Higher Open Interest is associated with higher liquidity and new capital inflow to the market. This is considered the equivalent of increase in efficiency and the ongoing trend continues. When Open Interest decreases, it is considered a sign of liquidation in the market, investors are leaving and the overall demand for an asset is on a decline, fueling a bearish sentiment among investors.

How does Funding rate affect cryptocurrency prices?

Funding fees bridge the difference between spot prices and prices of futures contracts of an asset by increasing liquidation risks faced by traders. A consistently high and positive funding rate implies there is a bullish sentiment among market participants and there is an expectation of a price hike. A consistently negative funding rate for an asset implies a bearish sentiment, indicating that traders expect the cryptocurrency’s price to fall and a bearish trend reversal is likely to occur.

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