Skip to main content

Traders forecast $3K Ethereum price but derivatives data suggests otherwise

ETH might have rallied 35% off its $1,750 low but derivatives data shows pro traders are not so bullish.

Ether (ETH) rallied 35% over the past ten days and reclaimed the critical $2,300 support, but the crucial $2,450 local top hasn't been tested since June 17. Part of the recent recovery can be attributed to the London hard fork, which is expected to go live on Aug. 4. 

Traders and investors view the EIP-1559 launch as a bullish factor for Ether price because it is expected to reduce gas fees. However, Ether miners are not thrilled with the proposal because the proof-of-work model will no longer be necessary after ETH2.0 goes live.

The network fees will automatically be set, although users can choose to pay extra for faster confirmation. Miners (or validators in the future) will receive this additional fee, but the base fee will be burned. In a nutshell, Ether is expected to become deflationary.

Ether price in USD at Bitstamp. Source: TradingView

While it's difficult to identify the main drivers of the recent rally, it is possible to gauge professional traders' sentiment by analyzing derivatives metrics.

If the recent price move was enough to instill confidence, the futures contracts premium and options skew should clearly reflect this change.

Bullish sentiment is missing even after futures contracts entered contango

By analyzing the price difference between futures contracts and regular spot markets, one can better understand the prevalent sentiment among professional traders.

The 3-month futures should trade with a 6% to 14% annualized premium on neutral to bullish markets, which is in line with stablecoins' lending rate. By postponing settlement, sellers demand a higher price, and this causes the premium.

Whenever the futures premium fades or turns negative, it raises an alarming red flag. This situation is also known as backwardation and indicates that there is bearish sentiment.

September Ether futures premium at OKEx. Source: TradingView

The above chart shows that the Ether futures premium flipped negative on July 20 as Ether tested the $1,750 support. However, even the massive rally up to $2,450 wasn't enough to bring the September contract premium above 1.3%, equivalent to 8% annualized.

Had there been some excitement, the annualized futures premium would have been at 12% or higher. Therefore, the stance of professional traders seems neutral right now and is flirting with bearishness.

To exclude externalities exclusive to the futures instrument, traders should also analyze options markets.

Options markets confirm that pro traders are not bullish

Whenever market makers and whales lean bullish, they will demand a higher premium on call (buy) options. This move will cause the 25% delta skew indicator to shift negatively.

On the other hand, whenever the downside protection (put option) is more costly, the 25% delta skew indicator will become positive.

Ether 1-month options 25% delta skew. Source: laevitas.ch

Readings between negative 10% and positive 10% are usually deemed neutral. The indicator had been signaling 'fear' between May 20 and July 19 but quickly improved after the $1,750 support held.

Despite this, the current 25% delta skew at negative 4 isn't enough to configure a 'greed' indicator. Options markets pricing is currently well balanced between call (buy) and put (sell) options.

Both derivatives metrics suggest that professional traders gradually exited the 'fear mode' on July 20, but they are nowhere near bullish.

Currently, there is little confidence in the recent rally from these metrics' perspective, which is understandable considering the risks presented by the upcoming hard fork and the uncertainty caused by unsatisfied miners.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.



from https://ift.tt/37bzPiQ
https://ift.tt/3ffW2AS
Labels:

Comments

Post a Comment

Any questions, Please.

Popular posts from this blog

DeFi isn’t dead, it just needs to fix these 3 critical problems

It’s been a rough year for DeFi, and it may not get any better until projects focus more on security, regulation and usability. The persistent challenges  decentralized finance  face have been well documented by a handful of analysts and the recent collapse of the Terra ecosystem re-enforced the fact that something is critically wrong with DeFi. I think DeFi today is completely broken for 99% of the population. The promise of a more transparent financial system has been overtaken by greed. UST/LUNA is just the latest in a string of bad developments: — Peter Yang (@petergyang) May 11, 2022 Let's take a look at what experts say DeFi needs to do in order to have another revival.  Improved usability To date, the promise of open and uncensored access to a global decentralized financial system has been largely hampered by the complicated interface, confusing multi-step staking processes and lack of clarity surrounding the yields on various tokens. What do you thi...
Post a Comment
Read more

ENS DAO delegates offer perspective on DAO governance and decentralized identity

AlphaWallet CEO and Spruce co-founder talk about their roles as contributors to the Ethereum Name Service following the project's recent airdrop. Earlier this month, the Ethereum Name Service, or ENS, formed a decentralized autonomous organization, or DAO, for the ENS community.  Cointelegraph spoke to two ENS DAO delegates who applied for the opportunity to represent the community and stay involved in the decision making process: Victor Zhang, CEO of AlphaWallet, an open source Ethereum wallet, and Gregory Rocco, co-founder of Spruce, a decentralized ID and data toolkit for developers. Zhang spoke about his experience as an external contributor to ENS and an early supporter since 2018. Zhang initially sought to help ENS by offering Alpha Wallet as a user-friendly tool for  resolving .eth names and cryptocurrency wallet addresses. Essentially, if a user inputs an .eth name in the AlphaWallet, it will show the wallet address, and vice versa using reverse resolution. Alpha...
Post a Comment
Read more

Institutional demand for crypto isn’t subsiding, but impact will be gradual

As another $2-trillion stimulus package looms in the U.S., institutions will continue to look at BTC as a hedge against inflation. For example, just last week, when the currency was hovering around the $30,000 threshold, a whole host of pundits was warning investors to brace for impact, suggesting that the premier crypto asset was on the verge of a correction and could once again dip to around the $20,000 region. However, in just one day, Bitcoin was once again playing with the bulls, retesting the $38,500 limit, only to witness a selloff and eventually settle around the $33,500 region. While for most crypto veterans that might have been another day at the office, others branded the upsurge as “Elon’s Candle,” which relates to Elon Musk, the CEO of Tesla, who included “Bitcoin” in his Twitter bio as well as sent out the following cryptic message “in retrospect, it was inevitable” to his 40 million-odd followers online. Regardless of the cause, has the recent price volatility sca...
Post a Comment
Read more