Ethereum’s ether surges above $2,000; derivatives may be ‘overheating’

Ether, the second-largest cryptocurrency by market capitalization and daily volume, hit a record $2,040.62, for a weekly gain of about 12 per cent. It has currently fallen back to about $2004. It is at €1654 at this writing.

Ether is the digital currency or token that facilitates transactions on the ethereum blockchain. In the crypto world, the terms ether and ethereum have become interchangeable.

Ether futures contracts launched on derivatives exchange CME earlier this month. In the derivatives market, the average level of the “funding rate” across major exchanges offering ether (ETH, +4.28%) perpetuals (futures with no expiry) has risen sharply from 0.069 per cent – just short of the early January record high of 0.21 per cent, according to data source Glassnode.

Because perpetual futures contracts never settle in the traditional sense, market operators need a mechanism to ensure that the contract and index prices would periodically converge. Funding rates serve this role.

A very high funding rate is considered a sign of leverage being excessively skewed to the bullish side (overbought conditions) and often injects volatility into the market.

Bitcoin hit a fresh high in Asian trading on Saturday, extending a two-month rally that saw its market capitalisation cross $1 trillion a day earlier.

The significance of bitcoin’s market value surpassing $1 trillion is that it is a milestone that puts the cryptocurrency in a very exclusive club with tech titans like Microsoft, Apple and Google’s parent company, Alphabet.

The world’s most popular cryptocurrency rose to an record $56,620, taking its weekly gain to 18 per cent. It has surged more than 92 per cent this year.  It is at €45,732 at this writing.

Bitcoin’s gains have been fuelled by evidence it is gaining acceptance among mainstream investors.

“Over the past several months, we’ve seen hedge fund managers like Paul Tudor Jones, insurance companies like MassMutual and corporations like MicroStrategy, Square and Tesla all adding exposure to Bitcoin,” Stephen McKeon, an associate professor of finance at the University of Oregon, told marketplace.org.