Is It Senseless to Expect a Considerable Spurt in Ethereum’s Price Pre?

Ether’s (ETH) remarkable 85% gain in the last 30 days has been a surprise for many bullish investors, which ultimately makes the range of US$800 seen in mid-July feel like ages ago.  Goerli was one of the largest and most active Ethereum testnets, and the last testnet to transition to Proof-of-Stake (PoS).

The main thing that needs to be kept in mind is that Bitcoin (BTC), the leading cryptocurrency, gained 28% during the same period. Therefore, there is no doubt in considering that the Ether bull run was driven by the Merge expectation, a shift from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus network.

They are now hoping that it will go up to US$1,900, but as per derivatives metrics, it can be considered that their expectations are not likely to happen, and the data shows that professional traders continue to be highly skeptical.

The testnet was scheduled to implement the Merge as of 1:45 UTC on the 11th of August. This final step of merging has been successful without any difficult obstacles and no major setbacks, which eventually resulted in giving the green signal for the mainnet transition on the 15th or 16th of September.

This is the primary reason behind increasing investors’ expectations of this significant landmark transition. The significant objective behind a multi-staged transition like this is higher scalability and reducing fees to a great extent because of sharding, a parallel process mechanism. However, the complete removal of a burdensome mining mechanism was the only change made in this merge.

In the end, miners don’t need to be compensated for newly minted coins, so the equivalent inflation is expected to be drastically reduced. However, the merge does not describe the processing limit or the amount of data that can be inserted or validated into each block.

On account of this, analysis of derivatives data plays an important role in understanding the confidence of investors in Ether sustaining its rally while heading towards US$2,000 or even higher.

In general, retail traders don’t give much importance to quarterly futures as there is a significant difference in prices compared to the spot market. Still, they are considered among some professional traders who prefer instruments as they stop the perpetual instability of the contract’s funding rates.

These fixed-month contracts generally trade at a somewhat premium compared to spot markets. This is because investors asked for more money to withhold the settlement. This condition is not exclusive to crypto markets. Accordingly, futures need to trade at an annualized premium of 4-8% in healthy markets.

On the 1st of August, the futures premium of Ether was reported to be in the negative region, which indicates extreme demand for bearish bets. This situation is commonly considered a warning to a red flag, called “backwardation.”

Roshun Patel, former vice president at Genesis Trading, said that the reason for Ether futures to enter into backwardation is Ethereum “fork odds,” which clearly points out that traders are trying to balance their upside spot risks by taking bearish place on future contracts.

In order to remove externalities specific to the futures instrument, traders need to additionally analyze the Ether options market. For example, the 25% delta skew shows when market makers and arbitrage desks are overpricing for upside or downside protection.

In bullish markets, options investors give higher odds to boost increasing prices, which cost the skew indicator to drop below -12%. On the contrary, a market’s generalized panic leads to an increase of 12% or even higher positive skew.

These lower numbers show traders’ unwillingness to take downside risks using ETH options. Even the latest rally of 85% hasn’t fostered a sense of confidence among professional investors.


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