The data on derivatives related to ETH indicates that traders who are optimistic about its future are starting to feel more at ease with the $1,700 price point, which could lead to more opportunities for upward price movements.
Between February 13 and February 16, the value of Ether increased by 18%, but it has since been trading within a narrow range around the $1,700 mark. Despite the recent improvement in its price, metrics related to Ether derivatives suggest that investors are still determining whether to be neutral or optimistic as they consider the effects of a stricter regulatory climate and the potential consequences of Ethereum’s Shanghai upgrade.
The primary worry for investors currently centers around regulation, particularly in light of the Financial Stability Board’s recent announcement that most stablecoins do not comply with global standards. The FSB, which was established by the G20 and operated under the auspices of the Bank of International Settlements (BIS), has emphasized the need for consistent regulation of crypto-assets based on the principle that equivalent activities, risks, and regulations should be treated equally, according to FSB Chair Klaas Knot.
On a positive note, there are indications of progress in China, as the government is adopting a more lenient stance towards Hong Kong’s crypto ambitions. A report by Bloomberg on February 20 stated that Chinese officials have been attending cryptocurrency events in Hong Kong to understand the local crypto industry better.
A report from Binance, published recently, provides an update on the state of Ether staking and examines why the Shanghai upgrade may not lead to a significant sell-off of ETH, as some traders have predicted. Binance’s analysis is grounded in liquid staking derivatives, which allow users to benefit from staked Ether while still having the option to sell the derivative token.
We can examine data on Ether derivatives to determine whether the rejection of the $1,700 price point has affected the sentiment of cryptocurrency investors.
ETH futures show higher demand for leverage longs
In a healthy market, the annualized premium for two-month futures should range from 4% to 8% to account for costs and associated risks. When the contract trades at a discount relative to regular spot markets, it suggests that traders lack confidence and is seen as a bearish indicator.
According to the chart, derivatives traders no longer hold a neutral-to-bearish outlook since the Ether futures premium surpassed the 4% threshold. Furthermore, the chart illustrates that despite ETH’s inability to maintain the $1,700 support on February 21, the market has demonstrated resilience.
The reduced demand for leverage shorts, or bearish positions, does not necessarily indicate that traders expect a positive price movement. To gain insight into how major players like whales and market makers are pricing the likelihood of future price movements for Ether, traders should examine the options markets.
The reduced demand for leverage shorts, or bearish positions, does not necessarily indicate that traders expect a positive price movement. To gain insight into how major players like whales and market makers are pricing the likelihood of future price movements for Ether, traders should examine the options markets.
Options risk metrics move away from bearish sentiment
The 25% delta skew is an indicator that provides valuable information when market makers and arbitrage desks are inflating the cost of hedging against upward or downward price movements.
During bear markets, options investors typically assign a greater probability to a price decline, leading to the skew indicator rising above 10%. Conversely, the skew indicator in bullish markets tends to drop below -10%, suggesting that demand for bearish put options is lower.
On February 14, the delta skew approached the bearish 10% level, indicating that professional traders were experiencing stress. However, the situation improved throughout the week as the index approached 0, indicating a similar appetite for both upside and downside risk.
Both options and futures markets suggest that professional traders shift towards a neutral-to-bullish sentiment, with higher chances of ETH breaking above the $1,700 resistance level. As a result, the odds favor Ether bulls, as investors remain composed despite the regulatory pressure and negative sentiment surrounding the upcoming Shanghai upgrade.
