The price of Ether (ETH) rose by 18% between February 13 and 16, but has since been trading in a range around the $1,700 level. Despite the recent price improvement, Ethereum derivatives performance remains neutral or bullish as investors speculate about a tighter regulatory environment and the potential impact of an Ethereum upgrade in Shanghai.
Investors’ biggest concern right now is regulation, especially after the United Kingdom’s Financial Stability Board (FSB) recently stated that most stablecoins do not meet international standards. The organization was created by the G20 and affiliated with the Bank for International Settlements (BIS). FSB Chairman Klaas Knot stated that the appropriate regulation of crypto assets should be “based on the principle of the same activity, the same risk, the same regulation.”
In more positive news, there have been some improvements in China after the government reportedly took a softer approach to Hong Kong’s aspirations to create a cryptocurrency hub. According to a February 20 Bloomberg report, Chinese representatives often attend Hong Kong crypto gatherings in an effort to understand local crypto business operations.
A recent report by Binance details the status of Ether staking and explores why the Shanghai upgrade might not lead to pressure from Ether sellers, as some traders predicted. Their rationale is based on liquid derivatives, which allow users to benefit from the staked Ether while retaining the ability to sell the derivative token.
Let’s take a look at the Ethereum derivatives data to see if the $1,700 price drop has had an impact on crypto investor sentiment.
ETH Futures Show Increased Demand for Leveraged Long Positions
The two-month premium on futures on an annualized basis should be between 4% and 8% in healthy markets to cover costs and associated risks. However, when a contract is trading at a discount compared to the regular spot markets, this is indicative of traders’ distrust and is a bearish indicator.
The chart above shows that derivatives traders are no longer neutral or bearish after the Ether futures premium broke the 4% threshold. More importantly, it is showing resilience even as ETH failed to hold the $1,700 support on Feb 21st.
A decrease in demand for short positions with leverage (bears) does not necessarily mean the expectation of a positive price movement. Traders should analyze the Ethereum options markets to understand how whales and market makers are evaluating the chances of future price movements.
Options risk readings are moving away from bearish sentiment
A skewed delta of 25% is a telling sign that market makers and arbitrage firms are overpriced for up or down protection.
In a bear market, options investors give a higher chance of prices falling, causing the skew indicator to rise above 10%. On the other hand, bull markets tend to skew below -10%, which means that bearish put options are less in demand.
The delta skew flirted with the bearish 10% on February 14, signaling stress from professional traders. However, things improved during the week as the index approached 0, indicating a similar risk appetite both up and down.
Currently, the options and futures markets are indicating that professional traders are moving towards neutral bullish sentiment, showing a higher chance of ETH breaking the $1,700 resistance. Hence, the odds are in favor of Ethereum bulls as investors remained calm despite regulatory pressure and negative sentiment surrounding the upcoming Shanghai rating upgrade.
This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.
Credit : cointelegraph.com
