ethereum Spot ETFs posted a strong trading debut in the US on July 24 after months of speculation and regulatory uncertainty.
ETFs recorded an impressive volume of $1.11 billion on the first day of trading, led by BlackRock’s $266.5 million inflows. In the first 90 minutes of trading, eth ETFs recorded a trading volume of $361 million, reflecting a strong interest and confidence in ethereum.
While the first-day trading volume of ethereum ETFs still represents around a quarter of the volume that bitcoin ETFs saw at launch, it is still a significant development for eth. Aside from a brief surge in the spot price, the surge in interest in ETFs has also affected the derivatives market.
ethereum derivatives had a volatile June, but had a relatively calm July. Over the past week, the entire derivatives market saw gradual but noticeable growth that appears to have accelerated after the launch of ETFs. CoinGlass data showed a steady rise in options open interest, particularly on July 24, when it hit $7.39 billion.
ethereum futures followed a similar trend, although the larger market size meant the $460 million increase in open interest did not manifest as as significant an uptick.
An increase in open interest is significant as it typically leads to increased liquidity and trading volume, providing ethereum with a more robust market structure. As trading activity around eth ETFs intensifies in the coming weeks, we can expect the derivatives market to continue its upward trajectory.
The growing institutional interest in eth ETFs could very well spill over into derivatives. Institutional and sophisticated investors could start employing basis trading strategies, leading to increased derivatives investment and volume.
Basis trading is a sophisticated strategy that involves taking advantage of the price difference between the spot and futures markets. It has become an important part of the bitcoin market, especially after the launch of bitcoin ETFs. A previous analysis by CryptoSlate found that bitcoin basis trading has significantly influenced the market, leading to flat price action that defies the inflows and volume seen in spot ETFs. With the introduction of ethereum ETFs, something similar could happen in the eth market as well.
While this trading strategy suppresses any significant price action, it could bode well for ethereum by increasing OI, creating a more liquid and active derivatives market. Such a market improves price discovery and risk management capabilities.
However, if a basis trade involving ethereum ETFs and derivatives gains a lot of traction, it could negatively impact the market. The most significant risk for ethereum comes from the possibility of market manipulation, where large institutional players could take advantage of discrepancies to manipulate prices.
Furthermore, if the base trade becomes too crowded, it could reduce the profitability of the strategy, leading to abrupt exits and potentially triggering sharp corrections. Given the size of ethereum’s DeFi market, this could prove especially dangerous for the coin.
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