Falling Bitcoin-Ether spread is music to altcoin traders' ears

• The spread between perpetual funding rates in bitcoin and ether markets recently collapsed, indicating an uptick in investors’ risk appetite.

• The development suggests continued outperformance of alternative cryptocurrencies ahead.

Crypto bulls questioning the sustainability of recent sharp gains in alternative cryptocurrencies (altcoins), including meme coins, may consider the latest trend in the spread between bitcoin and ether perpetual funding rates.

Data tracked by Glassnode show that the spread recently collapsed to an annualized level of - 9%, a sign investors are willing to pay more to take leveraged long or bullish bets in the ether perpetual futures market compared to bitcoin (BTC). In other words, risk appetite is rising – investors are willing to pour money into smaller and risky altcoins, expecting to generate a large profit.

“The spread between BTC and ETH funding rates is widening. Prior to October-2023, a relatively neutral regime can be observed, where the spread oscillated between positive and negative state,” Glassnode said in the weekly newsletter.

"However, since the October rally, funding rates for ETH have been consistently higher than for BTC, inferring an increased appetite by traders to speculate further out on the risk curve,” Glassnode added.

Bitcoin is the world’s largest cryptocurrency by market value and the most liquid, with growing mainstream adoption. Ether, meanwhile, is considered a relatively high beta and an altcoin leader. Thus, the price or funding rate differential in bitcoin and ether markets reflects the broader risk sentiment as the AUD/JPY pair does in traditional markets.

Perpetuals or futures without expiry include a funding rate mechanism so that prices for perpetuals closely follow spot prices. A positive funding rate means leverage is skewed to the bullish side, and long position holders are willing to pay shorts to keep their bets open. A negative rate suggests otherwise.

Bitcoin-Ether Funding Rate Spread. (Glassnode) (Glassnode)

The Bitcoin-Ether funding rate spread hovered between -3% (lower bound) and +3% (upper bound) in the first nine months of 2023. Since October, the spread has seen several brief drops below -3%, signaling a bias for ether and the wider altcoin market.

The latest decline comes as ether and other altcoins lead the total crypto market capitalization higher. Bitcoin’s share in the total market often called the dominance rate, has remained between 51% and 54% since early January, according to charting platform TradingView. The total crypto market capitalization has increased from roughly $1.7 trillion to $2.2 trillion during that period.

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