Review and Outlook of the Cryptocurrency Derivation Market in the First Half of 2025

In the first half of 2025, the global macro environment continues to be turbulent. The Federal Reserve has repeatedly paused interest rate cuts, reflecting that its monetary policy has entered a "wait-and-see tug-of-war" stage, while the Trump administration's tariff increases and escalating geopolitical conflicts further tear apart the global risk appetite structure. Meanwhile, the cryptocurrency derivation market has maintained the strong momentum from the end of 2024, with the overall scale reaching new highs. After BTC broke through its historical high of $111K at the beginning of the year and entered a consolidation phase, the global BTC derivation open interest (OI) saw significant growth, with the overall open interest rising from about $60 billion to a peak of over $70 billion from January to June. As of June, although the BTC price remained relatively stable around $100K, the derivation market has experienced multiple rounds of bull-bear reshuffling, with leverage risk being released and the market structure being relatively healthy.

Looking ahead to Q3 and Q4, it is expected that the derivation market will continue to expand in scale due to the macro environment (such as changes in interest rate policies) and the push from institutional funds. Volatility may remain convergent, while risk indicators need to be continuously monitored, maintaining a cautiously optimistic attitude towards the continued rise in BTC prices.

1. Market Overview

Market Overview

In the first and second quarters of 2025, the price of BTC experienced significant fluctuations. At the beginning of the year, the price of BTC reached a high of $110K in January, then fell back to around $75K in April, a decline of about 30%. However, with the improvement of market sentiment and sustained interest from institutional investors, the price of BTC climbed again in May, reaching a peak of $112K. As of June, the price stabilized around $107K. Meanwhile, BTC's market share continued to strengthen in the first half of 2025. According to data from data platforms, BTC's market share reached 60% at the end of the first quarter, the highest level since 2021. This trend continued into the second quarter, with market share exceeding 65%, indicating investors' preference for BTC.

At the same time, institutional investors' interest in BTC continues to grow, with a sustained inflow trend for BTC spot ETFs, whose total assets under management have exceeded 130 billion USD. In addition, some global macroeconomic factors, such as the decline of the US dollar index and distrust in the traditional financial system, have also boosted BTC's appeal as a store of value.

In the first half of 2025, the overall performance of ETH was disappointing. Although the price of ETH briefly reached a high of around $3,700 at the beginning of the year, it quickly fell back significantly. By April, ETH had dropped to a low of below $1,400, a decline of over 60%. The price rebound in May was limited; even with the release of technical good news (such as the Pectra upgrade), ETH only rebounded to about $2,700, failing to recover the early year high. As of June 1, the price of ETH stabilized around $2,500, down nearly 30% from the early year high, and showed no strong signs of sustained recovery.

The divergence between ETH and BTC is particularly evident. Against the backdrop of BTC's rebound and the continued rise in market dominance, ETH not only failed to rise in tandem but instead displayed significant weakness. This phenomenon is reflected in the significant decline of the ETH/BTC ratio, dropping from 0.036 at the beginning of the year to a low of about 0.017, a drop of over 50%. This divergence reveals a significant decline in market confidence in ETH. It is expected that in the third to fourth quarter of 2025, with the approval of the ETH spot ETF staking mechanism, market risk appetite may rebound, and overall sentiment is likely to improve.

The overall performance of the altcoin market is even more pronounced in its weakness. Data shows that some mainstream altcoins represented by Solana, despite a brief surge at the beginning of the year, subsequently underwent a continuous correction. SOL fell from a high of about $295 to a low of approximately $113 in April, a decline of over 60%. Most other altcoins (such as Avalanche, Polkadot, and ADA) also generally experienced similar or greater declines, with some altcoins even dropping more than 90% from their peaks. This phenomenon indicates an increased risk aversion sentiment in the market towards high-risk assets.

In the current market environment, BTC's position as a risk-averse asset has been significantly strengthened, with its attributes shifting from "speculative goods" to "institutional allocation assets/macroeconomic assets." Meanwhile, ETH and altcoins remain focused on "encryption-native capital, retail speculation, and DeFi activities," making their asset positioning more akin to technology stocks. The ETH and altcoin market continues to show weakness due to decreased funding preferences, increased competitive pressure, and the influence of macro and regulatory environments. Aside from a few public chains (such as Solana) that continue to expand their ecosystems, the overall altcoin market lacks significant technological innovation or new large-scale application scenarios to effectively attract sustained investor attention. In the short term, given the liquidity constraints at the macro level, if the ETH and altcoin markets do not have new strong ecological or technological drivers, it will be difficult to significantly reverse the weak trend, and investor sentiment towards altcoins remains cautious and conservative.

BTC/ETH derivation positions and leverage trends

The total open interest of BTC contracts reached a new high in the first half of 2025, driven by massive capital inflows from spot ETFs and strong demand for futures. The open interest for BTC futures further climbed, surpassing 70 billion USD at one point in May this year.

It is worth noting that the share of traditional regulated exchanges such as CME has rapidly increased. As of June 1, data shows that CME BTC futures open interest reached 158,300 BTC (approximately $16.5 billion), ranking first among all exchanges, surpassing a certain trading platform's 118,700 BTC (approximately $12.3 billion) during the same period. This reflects institutions entering the market through regulated channels, with CME and ETFs becoming important increments. A certain trading platform still holds the largest open interest in cryptocurrency exchanges, but its market share has been diluted.

In terms of ETH, similar to BTC, its total open interest reached a new high in the first half of 2025, surpassing 30 billion USD at one point in May this year. As of June 1, data shows that a certain trading platform has an open interest of 2.354 million ETH (approximately 6 billion USD) in ETH futures, ranking first among all exchanges.

Overall, the leverage usage of exchange users tended to be rational in the first half of the year. Although the total market open interest increased, multiple sharp fluctuations cleared excessive leveraged positions, and the average leverage ratio of exchange users did not get out of control. Especially after the market fluctuations in February and April, the margin reserves of exchanges were relatively abundant, and although the leverage ratio indicators of the entire market occasionally reached high points, they did not show a continuous upward trend.

CoinGlass derivation index ( CGDI ) analysis

The CoinGlass Derivatives Index (CoinGlass 衍生品指数), hereinafter referred to as "CGDI", is an index that measures the price performance of the global encryption derivatives market. Currently, over 80% of the trading volume in the encryption market comes from derivatives contracts, while mainstream spot indices do not effectively reflect the core pricing mechanism of the market. CGDI dynamically tracks the prices of the top 100 mainstream cryptocurrency perpetual contracts ranked by Open Interest and combines this with their Open Interest to construct a highly representative derivatives market trend indicator in real-time.

CGDI showed a divergence trend from the BTC price in the first half of the year. At the beginning of the year, BTC surged under the push of institutional buying, maintaining a price near historical highs, but CGDI began to decline since February ------ the reason for this drop is the weak prices of other mainstream contract assets. Since CGDI is calculated by weighting the OI of mainstream contract assets, while BTC stood out, ETH and altcoin futures failed to strengthen synchronously, dragging down the overall index performance. In short, in the first half of the year, funds clearly concentrated on BTC, which remained strong mainly supported by institutional long-term accumulation and the spot ETF effect, leading to an increase in BTC's market share, while the cooling speculative enthusiasm in the altcoin sector and capital outflow caused CGDI to decline while BTC prices remained high. This divergence reflects a change in investors' risk preferences: favorable ETF news and risk aversion led funds to flow into high market cap assets like BTC, while regulatory uncertainty and profit-taking put pressure on secondary assets and the altcoin market.

CoinGlass derivation risk index ( CDRI ) analysis

The CoinGlass Derivatives Risk Index (CDRI) is an indicator that measures the risk intensity of the cryptocurrency derivatives market, used to quantify and reflect the current market's level of leverage usage, trading sentiment, and systemic liquidation risk. CDRI focuses on forward-looking risk warnings and issues alerts in advance when market structure deteriorates, even indicating a high-risk status when prices are still rising. This index constructs a real-time risk profile of the cryptocurrency derivatives market through weighted analysis of multiple dimensions, including open interest, funding rates, leverage ratios, long-short ratios, contract volatility, and liquidation volumes. CDRI is a standardized risk scoring model with a range of 0-100; the higher the value, the closer the market is to overheating or a fragile state, making it prone to systemic liquidation events.

The CoinGlass Derivation Risk Index (CDRI) has generally remained at a slightly high neutral level in the first half of the year. As of June 1, the CDRI was 58, within the "medium risk/volatility neutral" range, indicating that the market is neither showing signs of overheating nor panic, and short-term risks are manageable.

2. Cryptocurrency Derivation Data Analysis

perpetual contract funding rate analysis

The change in funding rates directly reflects the use of leverage in the market. A positive funding rate usually indicates an increase in long positions, suggesting bullish market sentiment; while a negative funding rate may indicate rising short pressure, leading to a more cautious market sentiment. The fluctuations in funding rates alert investors to pay attention to leverage risks, especially during rapid changes in market sentiment.

In the first half of 2025, the perpetual contract market for encryption showed a dominant bullish trend overall, with the funding rate being positive for most of the time. The funding rates of major encryption assets continued to be positive and above the benchmark level of 0.01%, indicating a generally bullish sentiment in the market. During this period, investors held an optimistic view of the market outlook, which drove the increase in long positions. As long positions became crowded and profit-taking pressure increased, BTC surged and then fell back in mid to late January, and the funding rate returned to normal.

As we enter the second quarter, market sentiment rationally returns, with the funding rate from April to June mostly remaining below 0.01% (annualized about 11%), and in some periods even turning negative, indicating that the speculative frenzy has receded, leading to a balance between long and short positions. According to data, the number of instances where the funding rate shifts from positive to negative is very limited, indicating that there are not many points of concentrated market bearish sentiment. In early February, the news of Trump's tariffs triggered a sharp drop, causing the BTC perpetual funding rate to briefly turn negative, indicating that bearish sentiment reached a local extreme; in mid-April, when BTC quickly dipped to around $75K, the funding rate again temporarily turned negative, showing a clustering of shorts under panic sentiment; in mid-June, geopolitical shocks led to a third drop of the funding rate into negative territory. Aside from these extreme situations, the funding rate remained positive for most of the first half of the year, reflecting a long-term bullish tone in the market. The first half of 2025 continues the trend of 2024: the shift of the funding rate to negative is a rare occurrence, with each instance corresponding to a dramatic reversal in market sentiment. Therefore, the number of switches between positive and negative rates can serve as an indicator of emotional reversal.