Ether’s (ETH) impressive 85% gain over the last thirty days will have surprised even the most optimistic investors and makes the $800 range seen since mid-July seem like a long time ago. The bulls are now looking to gain support at $1,900, but the derivatives metrics tell a completely different story and the data suggests that professional traders remain highly skeptical.
It is important to remember that the leading cryptocurrency, Bitcoin (BTC), gained 28% in the same period. Therefore, there should be no doubt that the Ether bull run was fueled by the expectation of the “Merger”, a transition to a proof-of-stake (PoS) consensus network.
“Goerli” was the last remaining Ethereum testnet scheduled to implement “Fusion”, which officially became a proof-of-stake (PoS) blockchain as of 1:45 UTC on August 11. This final obstacle was completed without major setbacks. , greenlighting the mainnet transition on September 15 or 16.
There is a reason behind the growing expectations of investors towards this important historical transition. Such a multi-phase upgrade is aimed at higher scalability and extremely low fees due to the sharding, parallel processing mechanism. However, the only change in the “Merge” is the complete removal of the cumbersome mining mechanism.
Simply put, equivalent inflation will drop dramatically as miners will no longer need to be compensated with newly minted coins. Still, “Merge” doesn’t address the throughput limit or the amount of data that can be validated and inserted into each block.
For this reason, analysis of derivatives data is valuable in understanding how confident investors are that Ether will sustain the rally and head towards $2,000 and beyond.
Ether futures premium has been negative since August 1
Quarterly futures are often avoided by retail traders due to the price difference from spot markets. Still, those are the preferred instruments of professional traders because they avoid the perpetual fluctuation of contract funding rates.
These fixed-month contracts typically trade at a slight premium in the spot markets because investors demand more money to retain settlement. This situation is not exclusive to crypto markets. Consequently, futures should trade at an annualized premium of 4% to 8% in healthy markets.
The Ether futures premium entered the negative area on August 1, indicating excessive demand for bearish bets. Usually, this situation is an alarming red flag known as a backlog.
According to a post by Roshun Patel, former vice president of Genesis Trading, Ether futures have turned behind due to Ethereum’s “fork odds,” suggesting that traders are offsetting their upside risks by taking bearish positions on futures contracts.
To exclude futures instrument-specific externalities, traders should also analyze the Ether options markets. For example, the 25% delta bias shows when market makers and arbitrage desks overcharge to hedge up or down.
In bull markets, option investors give higher odds of a price rise, causing the bias indicator to drop below -12%. On the other hand, widespread market panic induces a positive bias of 12% or more.
The 30-day delta slope bottomed out at negative 4% on July 18, the lowest level since October 2021. Far from optimistic, these figures reveal traders’ unwillingness to take downside risks using options. ETH. Even the recent 85% rally did not instill confidence in professional investors.
Traders expect full-blown volatility ahead
Derivatives metrics suggest that ETH is not confident by professional traders to break above the $1,900 resistance any time soon. In addition, the expectations of large volatile movements around the “Merge” date corroborate such thesis. According to Mohit Sorout:
Strap in for the most notorious crypto play this year.
>Spot USD eth buyers
> Hedging it with selling Dec futures
Expect full blown fuvkery around the merge pic.twitter.com/bu0zBaKZWC
— Mohit Sorout (@singhsoro) August 9, 2022
One thing is for sure: investors are expecting “free” coins after the potential proof-of-work fork. The question remains whether the frenzy to undo those futures trades will see Ether return most of the 85% gains from the past 30 days.
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