Currently, the price of ETH has broken the $ 2,000 threshold, hitting an all-time high this week. Traders have become overly optimistic and are expecting more in the short term.
Some analysts believe that Visa allows transaction payments in USDC on the Ethereum network to initiate the most recent recovery. Meanwhile, others view the current up move of ETH as due to the breakout of the “triangle market structure”.
Regardless of the cause of the recent 25% rally, professional traders look very bullish around this time. The proof is that the futures contract premium skyrocketed, reaching its highest ever level.
This movement increases the risk of mass liquidation due to the excessive leverage of buyers, but professional traders seem confident, as shown by the delta deviation indicator.
Investors can anticipate the cause, as the proposed EIP-1559 protocol improvement proposal, implemented in July, is aimed at overcoming rising gas charges. The upgrade is intended to use a flexible block size instead of the current fixed model, and it is intended to bring network usage below 50%.
To assess whether professional traders are inclined to an uptrend, it is advisable to start by analyzing the futures fees. This indicator measures the distance between the futures contract price and the regular spot market.
3-month futures contracts should typically trade with an annual spread fee of between 10% and 20%, which is the equivalent of stablecoin lending interest rates. By deferring the payment, the seller asks for a higher price, causing a price difference.
ETH futures spreads match its all-time high at 38%, which shows how expensive it is for the leveraged long side. A spread fee of over 20% isn’t necessarily a pre-crash warning, but a buyer’s overconfidence could pose a risk if the market falls below $ 1,750.
It’s worth noting that traders sometimes increase leverage during a rally but then buy the underlying asset (ETH) to reduce the risk of futures contracts.
Sometimes the high leverage of fixed month contracts is a consequence of retail traders buying heavily on perpetual futures. Whales, arbitrage tables and market makers avoid exposure to these contracts due to varying funding rates.
The options market is also tilted in an uptrend
To explain exactly how professional traders are balancing the risks of a sudden market move, we should turn to options markets.
The 25% delta deviation provides instant and reliable “fear and greed” analysis. This indicator compares similar long-call options and will turn negative when the neutral to bearish spread is higher than options of similar risk. This situation is often referred to as “fearful”, although it often occurs after solid rallies.
Negative deviation, on the other hand, leads to higher upside costs of protection and towards an uptrend.
For the first time since Feb. 5, the option deviation indicator is leaning in an uptrend, although it’s not far from the -10% neutral threshold. Furthermore, the “fear and greed” indicator has continuously improved over the past 5 weeks.
Part of the reason for such only modest optimism is fear of the possibility of a sharp correction after overcoming the psychological barrier of $ 2,000, similar to that seen on Feb. 19.
Around this time, however, the derivatives markets are doing well and professional traders appear to be building positions as ETH marks a new all-time high.