Despite reaching notable milestones in 2024, known cheerfully by the bullish community as the Merge, the Surge, the Scourge, the Verge, the Purge and the Splurge, Ethereum finds itself in a precarious position. ETH dominance is at its lowest point since 2021, forcing it to face a complex combination of immediate challenges that have pushed it to the centre of an intense value debate.
Two recent industry reports, one a collaboration between Bybit and Block Scholes, and the other from Binance, have shed further light on the current market dynamics cornering Ethereum. These publications provide stakeholders and investors with curious data, recent insights, and expert analyst opinion of the strategic dilemmas and mixed signals that Ethereum is currently emitting, whether intentional or not.
Bybit, now the world’s second-largest cryptocurrency exchange by trading volume, published a new derivatives analytics report with support from Block Scholes, an institutional-grade analytics, data and research platform. Titled “Bybit and Block Scholes Crypto Derivatives Analytics Report”, the December 11th publication identified both a retreat in ETH perpetual positions and a sustained lead over BTC options.
Ethereum loss of dominance in relation to Bitcoin is being attributed to too many upgrades in too short a period of time facing too little adoption. This paves the way for other Layer 1 blockchains to gain market and mindshare amid a market shift, though the ByBit x Scholes report reiterates that it is still performing well for derivatives traders. Now, it is hoped that Ethereum will strategically manage their priorities better in order to not lose further ground, including by scaling in conjunction with L2s to maintain appeal. The success of these long-term value capture approaches will hinge on the smart contract platform’s ability to balance different complex considerations.
Bybit and Block Scholes have built upon these points with the provision of critical analysis into the derivatives market and Ethereum’s performance there. They found that ETH perpetual open interest has declined as over-leveraged long positions were liquidated, with BTC perps offering greater stability. At the same time, a recalibration of market sentiment free from extreme bearishness is one theory for why funding rates have stabilized at around 0.01%.
Interestingly, the report found that the ETH options market demonstrates an inverted term structure, whereby near-term call options offer higher open interest than longer-term ones. The conclusion is, again, one of mixed signals. ETH options maintain a lead over BTC in open interest, despite trading volumes dropping due to the spot price of both ETH and BTC. Investors may compute that information differently.