Ethereum futures and options data reflect investors’ growing confidence in ETH price


The price of Ether (ETH) rose 16% between January 14 and January 21, peaking at $1,680 before facing a 5.4% rejection. Curiously, the same resistance level led to a substantial correction in late August 2022 and again in early November 2022.

Ether/USD price index, 2 days. Source: Trading View

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

Negative news flow may have limited investors’ appetite for Ether after struggling cryptocurrency firm Digital Currency Group (DCG) faced more legal issues this week. On January 23, a group of Genesis Capital creditors filed a lawsuit alleging violations of federal securities laws. Additionally, the plaintiffs allege that the lending company made false and misleading statements as part of a scheme to defraud potential and existing digital asset lenders.

Another new concern for Ether holders came on January 22 after a “temperature check” proposal to deploy the Uniswap v3 protocol on BNB Chain received overwhelming support from the Uniswap community. 80% of Uniswap’s 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 environment for the upcoming Shanghai network upgrade. 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) has been deposited into the Ethereum staking contract, and heavy criticism has followed multiple delays in activating withdrawals.

Let’s take a look at Ether derivatives data to understand if the price rejection of $1,680 has impacted crypto investor sentiment.

ETH futures finally enter the neutral zone

Retail traders generally avoid quarterly futures because of their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.

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

Annualized premium of 3-month Ether futures contracts. Source: Laevitas.ch

The chart above shows that derivatives traders are no longer bearish as the Ether futures premium has reached the 4% threshold for neutral markets. So, bulls can be happy that the indicator has moved to a modest premium, but that doesn’t mean traders are expecting the immediate result of positive price action.

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

Options traders are comfortable with downside risk

The 25% delta skew is a telltale sign when market makers and arbitrage desks overcharge for upside or downside protection.

In bear markets, option investors give higher odds for falling prices, causing the bias indicator to rise above 10%. On the other hand, bullish markets tend to push the bias indicator below -10%, which means bearish puts are discounted.

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

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The delta skew stabilized near 0% last week, signaling that Ether options traders are exhibiting neutral sentiment. This is a stark contrast to late 2022, when the 25% Bias Index hovered around 18%, indicating a lack of comfort in taking downside risk.

Ultimately, the options and futures markets indicate that professional traders are moving from neutral to bearish sentiment to neutral positioning, meaning there is no discomfort after the rejection at 1680. $ and subsequent correction.

Consequently, the odds favor Ether bulls as negative news flow could not prevent the 35.5% year-to-date gains and demand for short sales using futures contracts remains weak.