Ethereum’s trading volume data reveals that derivatives are still dominating the market. From July 10th to July 17th, the daily trading volume of futures and perpetuals ranged from $39.5 billion to a staggering $65.3 billion, overshadowing spot volumes which remained low at just above $3 billion. Even with the spike in interest due to ETFs on July 17th, spot activity still remained minimal compared to derivatives trading.
This imbalance in trading volume indicates that the rally in Ethereum is not driven by actual buying but rather by speculative trading by short-term traders and arbitrage desks. The majority of trading volume is driven by these market participants, making the rally vulnerable to sudden unwinding by over-leveraged traders.
Despite the record weekly net inflow of $1.78 billion into Ethereum ETFs, much of this capital is likely tied to basis trades – delta-neutral strategies that profit from price discrepancies between spot and futures markets. These trades are hedged positions where traders short futures against ETF longs, creating sell pressure in the derivatives market without necessarily indicating a bullish sentiment.
The surge in the 30-day Weighted Annualized ETH Basis Return to 14% reflects widening gaps between spot and futures pricing, creating opportunities for arbitrage but also signaling potential market risks. Aggressive basis expansion is often associated with highly leveraged market conditions, where traders borrow funds to exploit spreads, leading to inflated derivatives activity without significant spot market participation.
In order for the Ethereum rally to be sustained, the market needs more than just basis-driven liquidity. Genuine long-only inflows, real demand, and conviction from investors are essential for price strength. Without a shift towards more organic market dynamics, the price of Ethereum remains dependent on derivatives trading, making it vulnerable to sudden market fluctuations.