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Ethereum futures and options data reflect growing investor confidence in ETH price

Ether (ETH) price surged 16% between January 14th and 21st, topping out at $1,680 before being rejected by 5.4%. Curiously, the same resistance level in late August 2022 and again in early November 2022 led to a significant correction.

Ether/USD Price Index, 2 days. Source: TradingView

On the one hand, traders are relieved that Ether is up 35.5% year-to-date, but the repeated corrections that follow retests of the $1,680 resistance may have dented investor sentiment.

Negative news may have curbed Ether investors’ appetites after troubled cryptocurrency firm Digital Currency Group (DCG) faced more legal troubles this week. On Jan. 23, a group of Genesis Capital creditors filed a lawsuit alleging violations of federal securities laws. In addition, the plaintiffs allege that the lending company provided false and misleading information in order to defraud prospective and existing digital asset lenders.

Another new worry for Ether holders came on January 22nd after a “temperature check” proposal to deploy the Uniswap v3 protocol on BNB Chain received overwhelming support from the Uniswap community. 80% of Uniswap UNI governance token holders voted to deploy the additional version of the decentralized exchange protocol.

On the bright side, Ethereum developers have created a test bed for the upcoming network upgrade in Shanghai. According to Ethereum developer Marius Van Der Wijden, the testnet appears to have been created to evaluate staking withdrawals, which are currently disabled on the mainnet. Over 14.5 million ETH (worth $23 billion) was deposited into the Ethereum staking contract, and harsh criticism followed for multiple delays in allowing withdrawals.

Let’s look at ether derivatives data to understand if the $1,680 price rejection affected crypto investor sentiment.

ETH futures are finally entering neutral territory

Retailers typically avoid quarterly futures due to their price differential to spot markets. Meanwhile, professional traders prefer these instruments because they prevent fluctuations in funding rates in a perpetual futures contract.

The annualized three-month futures premium should trade between 4% and 8% in healthy markets to cover the costs and the risks involved. When the futures are trading at a discount to regular spot markets, it shows a lack of confidence from leveraged buyers and is a bearish indicator.

Ether 3 month futures annualized premium. Source: Laevitas.ch

The chart above shows that derivatives traders are no longer bearish as the ether futures premium has hit the 4% threshold for neutral markets. So, bulls can celebrate that the indicator has shifted to a modest premium, but that doesn’t mean traders are expecting the immediate outcome of a positive price move.

For this reason, traders should analyze Ether’s options markets to understand how whales and market makers are pricing in the odds of future price movements.

Options traders are comfortable with the downside risk

The 25% delta skew is a telling sign that market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors offer higher chances of price dumping, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, which means the bearish put options are discounted.

Ether 60-day options 25% delta skew: Source: Laevitas.ch

Related: Why is crypto pumping? Watch the market report live

The delta skew has stabilized near 0% for the past week, suggesting that ether options traders are presenting a neutral sentiment. This is in stark contrast to late 2022, when the 25% skew index was hovering near 18% – suggesting a lack of certainty in taking downside risks.

Ultimately, both the options and futures markets are suggesting that pro traders are shifting from neutral to bearish sentiment to neutral positioning, meaning there is no unease after the $1,680 rejection and subsequent correction.

As a result, the odds favor Ether bulls as negative newsflow hasn’t prevented 35.5% year-to-date gains and demand for futures shorts remains weak.

The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.

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