Cryptocurrency investors are closely monitoring the recent surge in alternative cryptocurrencies (altcoins), particularly meme coins, as concerns over the sustainability of sharp gains arise. One notable trend drawing attention is the spread between bitcoin and ether perpetual funding rates, indicating a shifting risk appetite within the market.
Ether perpetual funding rates surge above Bitcoin
Recent data from Glassnode reveals a significant collapse in the spread between Bitcoin and ether perpetual funding rates, plummeting to an annualized level of -9%.
This suggests that investors are increasingly willing to pay higher premiums for leveraged long or bullish positions in the ether perpetual futures market than bitcoin (BTC).
Such a trend signifies a growing risk appetite among investors, prompting them to allocate funds to smaller and riskier altcoins in anticipation of substantial profits.
According to Glassnode’s weekly newsletter, the funding rate spread between BTC and ETH has experienced notable fluctuations. Before October 2023, the spread exhibited a relatively neutral regime, oscillating between positive and negative states.
However, since the October rally, funding rates for ether have consistently surpassed those of bitcoin, indicating a heightened willingness among traders to engage in speculative activities across the risk curve.
Bitcoin vs. Ether: Reflecting broader risk sentiment
As the world’s largest cryptocurrency by market value and most liquid asset, Bitcoin is a barometer for the broader cryptocurrency market sentiment. Conversely, Ether, considered a high-beta altcoin leader, often reflects investors’ appetite for riskier assets within the crypto space.
The price and funding rate differentials between bitcoin and ether markets parallel the risk sentiment observed in traditional markets, akin to the AUD/JPY currency pair.
Perpetual futures, characterized by their absence of expiry dates, incorporate a funding rate mechanism to ensure that prices closely track spot prices. A positive funding rate implies a bullish skew in leverage, with long position holders willing to pay shorts to maintain their positions.
Conversely, a negative rate suggests the opposite scenario. Throughout the first nine months of 2023, the bitcoin-ether funding rate spread fluctuated between -3% (lower bound) and +3% (upper bound).
However, the spread has experienced several brief drops below -3% since October, signaling a prevailing bias toward ether and the broader altcoin market.
Implications for crypto investors
The narrowing spread between Bitcoin and ether perpetual funding rates underscores a shifting dynamic within the cryptocurrency market. As funding rates for ether consistently outpace bitcoin, it suggests a growing appetite among investors for riskier assets and altcoins.
While bitcoin remains a cornerstone of the crypto market, the surge in funding rates for ether highlights the increasing prominence of alternative cryptocurrencies in investors’ portfolios.
