Most traders have noticed that Ether (ETH) the price has seriously outperformed Bitcoin (BTC) for months now and the ETH / BTC ratio has recovered over 230% in 2021 and recently hit a new high of 0.089 BTC on December 9.
To put things in perspective, Ether's $ 490 billion market cap currently accounts for 54% of Bitcoin's $ 903 billion. This proportion ended 2020 at a mere 15%, so it is safe to conclude that there has been a turnaround. It may still be far from what Ethereum maximalists envisioned, but it's still a pretty respectable run.
Rather than analyzing the justification for the move or worse, predicting the outcome based on some imprecise expectations, analysts should explore the market structure of each coin individually.
For example, does the futures market premium face a similar trend in both currencies, and how does the long-short ratio of professional traders compare? These are the most relevant metrics for determining whether a move has the strength to continue.
Futures premium favors Ether
Quarterly futures are the preferred instruments of whales and arbitrage desks, but due to their settlement date and the difference in price from the spot markets, they can seem complicated to retail traders. However, the most notable advantage of these quarterly contracts is the lack of a fluctuating financing rate.
These fixed month instruments are generally trading slightly above spot market prices, indicating that sellers are asking for more money to hold the settlement longer. Consequently, futures should trade at an annualized premium of 5% to 15% in healthy markets. This situation is known as "contango" and is not exclusive to crypto markets.
After comparing both charts, we can see that Bitcoin futures are trading at an average annualized premium of 2.6% for March 2022 and 4.4% for June 2022. This compares to 2.9% and 5% for Ether, respectively. As a result, it becomes clear that the whales and the trading desks are demanding a higher premium on Ether and this is a bullish indicator.
Bitcoin's long-to-short ratio declined
To effectively measure how professional traders position themselves, investors should monitor the long-to-short ratio of top traders on major crypto exchanges. This metric provides a broader view of traders' effective net position by collecting data from multiple markets.
It's worth noting that exchanges collect data on top traders differently because there are multiple ways to measure net customer exposure. Therefore, any comparison between different providers should be made on percentage changes rather than absolute numbers.
The long-to-short ratio for major Bitcoin traders is currently at a 1.21 ratio average, down from 1.39 on Dec. 5. Compared to 1.59 two weeks ago, this indicates that (long) buyers reduced their exposure by 24%. Again, the absolute number is less important than the overall change in time frame.
Meanwhile, Ether whales and arbitrage tables showed a positive sentiment reversal from December 5 after long to short moved to 1.16 from 1.0. Comparing the November 25 average data, the long to short positions of the major Ether traders are down 20% from 1.43.
Data Shows Ether Traders Are More Confident Than Bitcoin Traders
Current derivatives data favors Ether because the asset is currently displaying a higher futures base rate. Furthermore, the improvement in the long-to-short position of the major traders since October 5 indicates confidence in a delicate period in which the price of ETH is down 16% from its all-time high of $ 4,870.
Bitcoin investors may not be confident as its price is 31% below the all-time high of $ 69,000 on November 10. There is no way of knowing if this is a cause or a consequence. Still, judging from the futures premium and long-to-short data, Ether appears to have enough momentum to keep outperforming.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and commercial movement involves a risk. You should do your own research when making a decision.
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