The 38% ETH futures spread signals traders predict the price of $ 2,500

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.

ETH price at Coinbase (USD)

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 ETH futures difference fee on OKEx

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.

25% delta deviation distribution of ETH option contracts over 90 days on Deribit

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.

The Ethereum derivative market is inclined to an uptrend even when the ETH price is at a critical support

Ether (ETH) price is trading close to critical support, but derivative data shows that professional traders expect more short-term downtrends.

ETH lost support of $ 1,750 on March 22, marking a 7% loss, and $ 230 million was liquidated on futures contracts. It has held close to the solid support of $ 1,500 but investors are not willing to open new Long positions despite the price being almost 13% lower than the highs of the previous week.

ETH price chart | Source: Tradingview

Binance Chain recently surpassed Ethereum’s transaction volume. This staggering growth in Unique / Active wallets has undoubtedly contributed to investor optimism. The NFT frenzy has spurred new projects out of the high fees of the Ethereum network.

Things get more difficult for Ethereum as many DeFi protocols are looking for interoperable alternatives. PancakeSwap is the flagship application of Binance Smart Chain (BSC) that was able to amass $ 4.46 billion of total locked value (TVL).

Meanwhile, Ethereum developers are trying to implement the Berlin hard fork with the aim of reducing transaction costs. The upgrade is expected to go into effect April 14, but some industry leaders, including Enjin CEO Maxim Blagov, don’t expect a significant impact on cost per transaction.

Let’s take a look at a few derivative indicators to determine why investors’ expectations for ETH have recently declined.

Futures premiums are still increasing

Basis is often referred to as a futures premium, and it measures the distance between long-term futures contracts and the current spot market level.

Annual premiums of between 10% and 20% (basis) are interpreted as neutral, known as “Contango – compensation for deferred purchase”. This difference in price reflects the arbitrage opportunity cost, usually the stablecoin stake rate.

On the other hand, whenever this indicator fades out or turns negative, it shows that the market is quickly turning to a downtrend.

Basis 3-month ETH futures contract on OKEx | Source: Skew

The chart above shows that the indicator recently peaked at 32% on March 20, showing that buyers use enormous leverage. As the ETH price fell, the basis of futures returned to a slight increase of 23%.

Considering the 10% price drop since the peak of $ 1,850 on March 20, the futures premium remains at a good level and is a bullish indicator.

Option deviation has been neutral since Feb. 5

Even though the futures market has rallied over the past two weeks, options traders are uncomfortable offering bearish protection. The call option allows the buyer to acquire ETH at a fixed price at the expiration of the contract. The put option, on the other hand, provides insurance to the buyer and protects against discounts.

Whenever market makers and professional traders lean in a downtrend, they demand a higher premium on short options. This trend causes a positive 25% delta deviation indicator.

Allocate options of 25% delta deviation of ETH | Source: Laevitas

The deviation indicator between -10 and +10 is considered neutral, which has been happening since Feb. 5. This is proof of the equilibrium risk assessment from whales and mid market makers. the risk decreases and the risk increases.

Hence, there is no evidence that options traders are bullish, as opposed to ETH futures markets.

This data is not of concern, as ETH has risen 74% by 2021. After strong rallies, it is natural for traders to seek protection from the eventual price correction.

$ 1,500 appears to be holding as ETH’s primary support, but it wouldn’t be surprising if it tested lower levels before rebounding to recapture the key psychological barrier of $ 1,800.