Bitcoin Favored Over Ether by CME Traders So Far This Year, Arcane Research Report Shows

Institutional traders are prioritizing bitcoin over ether exposure so far in 2023, according to a report from digital asset analysis firm Arcane Research.

Open interest in bitcoin (BTC) futures listed on the derivatives giant Chicago Mercantile Exchange (CME) has climbed 6% this year while CME’s ether (ETH) futures have declined by 29% in open interest, Arcane Research said.

Open interest is the total number of outstanding derivative contracts that have not been settled for an asset.

Open interest in bitcoin futures listed on the Chicago Mercantile Exchange has climbed 6% this year so far, while ether's dropped. (Arcane Research)

“This open interest trend deviates from the normal trend in CME futures, and it illustrates that BTC has led the early 2023 market strength,” Arcane Research's Bendik Schei and Vetle Lunde wrote in the report.

Smaller altcoins have also rallied in January, driven by short squeezes, poor liquidity and increased risk appetite among retail investors emboldened by BTC’s surge, the report noted. In contrast, ether hasn't jumped similarly to BTC, which could explain ETH’s relatively weak start in January compared to other altcoins, according to the report.

The report also highlighted that the ETH futures annualized rolling three-month basis has grown in the last few weeks and now sits at similar levels to that of BTC. Both BTC and ETH's futures basis on CME has been positive since the week of Jan. 6, signaling a positive sentiment among traders.

CME ether futures annualized rolling three-month basis currently sits at similar levels to that of bitcoin. (Arcane Research)

Joe DiPasquale, CEO of crypto fund manager BitBull Capital, told CoinDesk that institutional investors’ preference for BTC represented “the safest choice in a bear market.” He noted that Ethereum’s upcoming protocol updates might be raising concerns about an increased “risk of things going wrong,” and added that the Shanghai hard fork, which will allow validators who help operate the network to withdraw 16 million staked ETH, “is expected to add selling pressure.”

DiPasquale also said that BTC's role could also serve as the base currency in all altcoin pairs, meaning when the market drops other cryptocurrencies would lose value in both U.S. dollar and BTC terms.

"By gaining exposure to BTC, investors can also hedge against such losses, and potentially even gain more during the initial phase of a bull run, since it is typically led by bitcoin rising in price," he said.