For the past twelve days, the Ether (ETH) price has been trading in a tight descending range. Surprisingly, not even the news that Binance and Changpeng “CZ” Zhao had been sued by the Commodity Futures Trading Commission (CFTC) was enough to break the support level.
The lawsuit, filed on March 27, claimed that Binance provided derivatives trading services to US-based clients without first obtaining a derivatives license. Additionally, the US Securities and Exchange Commission served Coinbase with a notice from Wells on March 22.
Even if traders see no reason to reduce their Ether positions due to increased regulatory risk, Binance owns 35% of the open interest in Ether futures. Therefore, if traders are suddenly forced to liquidate their positions or if there is a sudden reduction in liquidity after US entities are effectively delisted from the Binance markets, a significant impact on the trading markets should be anticipated. Ether derivatives.
One could point to market resilience after derivatives exchange BitMEX lost its long-standing market share advantage following a 30-minute outage in March 2020 during a Bitcoin crash. However, there is no way to predict the outcome of the regulators’ case against Binance, so it would be naive to assume that there is a zero percent chance of a service outage, even if it means clients can close positions and withdraw. assets.
Instead of focusing solely on the ETH price, it is essential to keep a close eye on Ether derivatives to understand how professional traders will react.
ETH derivatives show increased demand for long positions
In healthy markets, the annualized two-month futures premium should trade between 5% and 10% to cover associated costs and risks. However, when the contract is trading at a discount (backwardation) relative to traditional spot markets, it indicates a lack of trader confidence and is considered a bearish indicator.
On March 29, derivatives traders using futures contracts turned slightly more bullish as the indicator settled at 4%. The futures premium hit its highest level in four weeks, despite remaining below the 5% neutral threshold. These traders were even more confident that the market structure would remain stable.
Still, the growing demand for leveraged (bullish) longs does not necessarily translate into an expectation of positive price action. Consequently, traders should analyze the Ether options markets to understand how whales and market makers are pricing the probabilities of future price movements.
Options traders unfazed by regulators’ moves
The 25% delta deviation is a telltale sign that market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, options investors are more likely to see prices fall, pushing the bias indicator above 8%. On the other hand, bull markets tend to push the bias indicator below -8%, which means that bear put options are less in demand.
The delta skew indicator has been neutral since March 22, indicating similar prices for bullish and bearish options. However, with the price of Ether approaching its highest level in seven months at $1,800, one would expect the hedge puts to be trading at a premium, which is not the case.
Given the increasing regulatory pressure on Coinbase and Binance, it is clear that the derivatives markets are showing signs of confidence. Ether’s bullish momentum could also be related to the confirmation of the Shapella fork on April 12. Validators will be able to withdraw their ETH coins from the Beacon Chain once the Ethereum Enhancement Proposal EIP-4895 is activated.
The options and futures markets indicate that professional traders are not concerned about the actions of regulators against Binance and Coinbase. Those who believe that the descending channel pattern will be broken to the upside have a strong claim.
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