A 38% premium on Ethereum futures indicates that traders anticipate $ 2,500 for ETH


Now what Ether (ETH) price has broken above the $ 2,000 level, hitting all-time highs this week, the traders have become excessively bullish and expect more increases in the short term.

Some analysts believe that Visa’s initial settlement of USD Coin (USDC) stablecoin transactions on the Ethereum network was what started the most recent rise. Others attribute Ether’s current rise to the breakdown of a “triangular market structure.”

Regardless of the cause behind the recent 25% spike, professional traders seem very optimistic this time. You can reach this conclusion watching the futures base on the rise, that has reached its highest level in history.

This movement carries a higher risk of cascading settlements due to excessive leverage from buyers, but professional traders seem to trust it, as shown by the delta skew indicator.

Price of Ether (ETH) on Coinbase, in USD. Source: TradingView

Investors may be anticipating the EIP-1559 protocol upgrade proposal to be launched in July, which aims to fix rising gas rates.. The enhancement is intended to use flexible block sizes instead of the current fixed model, and targets network utilization below 50%.

To assess whether professional traders are leaning higher, start by looking at the futures premium. (also known as base). This indicator measures the price difference between the prices of futures contracts and the usual spot market.

Basis for 3-month ETH futures on OKEx. Source: Skew

3-month futures are typically traded at an annualized premium that ranges from 10% to 20%, comparable to the stablecoin loan rate. By postponing the settlement, sellers demand a higher price, causing the price difference.

Ether futures basis has reached its all-time high at 38%, indicating that it is costly for leveraged long positions. A base level above 20% is not necessarily a pre-collision alert, but overconfidence from buyers could pose a risk if the market falls back below $ 1,750.

It should be noted that traders sometimes increase their use of leverage during a rally, but later they buy the underlying asset (Ether) to get rid of the risk of the futures.

Sometimes the high leverage of fixed-month contracts is a consequence of the aggressive buying of futures in perpetuity by retail traders. Whales, arbitration desks and market makers avoid exposure to these contracts due to their variable funding rate.

Options markets are also trending higher

To correctly interpret how professional traders are balancing the risks of unexpected market movements, one must go to the options market.

The delta skew of 25% provides a reliable and instantaneous analysis of the index of “fear and greed”. This indicator compares similar call and put options and becomes negative when the premium of risk-neutral put options is higher than that of similar risk call options. This situation is often considered a “scary” scenario, although it is common after strong rallies.

On the other hand, a negative skew translates into a higher upside protection cost and points to the uptrend.

Delta skew of 25% for Deribit 90 day ETH options. Source: laevitas.ch

For the first time since February 5, the options skew indicator is leaning higher, although it is not far from the neutral threshold of 10%. What’s more, the “fear and greed” indicator has continually improved over the past five weeks.

Part of the reason for this modest optimism lies in the fear of a strong correction after crossing the psychological barrier of $ 2,000, similar to the one observed on February 19.

This time, however, the derivatives markets are in good health, and professional traders appear to be accumulating positions marks a new all-time high.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and operation involves a risk. You should do your own research when making a decision.

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