Traders Predict Ethereum Price of $ 3,000, But Derivatives Data Hints Otherwise

Ether ( ETH ) has risen 35% in the past ten days and has recovered critical support of $ 2,300, but the crucial local high of $ 2,450 has...


Ether (ETH) has risen 35% in the past ten days and has recovered critical support of $ 2,300, but the crucial local high of $ 2,450 has not been tested since June 17. Part of the recent recovery can be attributed to the London hard fork, which is set to go live on August 4.

Traders and investors see the Launch EIP-1559 as a bullish factor for the price of ether as it should reduce gas costs. However, the ether miners are not thrilled with the proposal as the Proof of Work template will no longer be needed after ETH2.0 goes live.

Network charges will be automatically set, although users can choose to pay extra for faster confirmation. Minors (or validators in the future) will receive this additional fee, but the base fee will be burned. In short, Ether should become deflationary.

Ether price in USD on Bitstamp. Source: TradingView

While it is difficult to identify the main drivers of the recent rally, it is possible to gauge the sentiment of professional traders by analyzing derivative metrics.

While the recent price movement has been enough to inspire confidence, the premium on futures contracts and asymmetry in options should clearly reflect this change.

Bullish sentiment is missing even after futures entered the contango

By analyzing the price difference between futures and regular spot markets, one can better understand the prevailing sentiment among professional traders.

3-month futures are expected to trade with an annualized premium of 6% to 14% in neutral to bullish markets, which is in line with the stablecoins lending rate. By postponing settlement, sellers demand a higher price, resulting in the premium.

Every time the term premium wanes or turns negative, it raises an alarming red flag. This situation is also known as a shift and indicates that there is bearish sentiment.

OKEx September Ether Futures Premium. Source: TradingView

The chart above shows the Ether futures premium turned negative on July 20 as Ether tested the $ 1,750 support. However, even the massive rally to $ 2,450 was not enough to push the September contract premium above 1.3%, which equates to 8% on an annualized basis.

If there had been some enthusiasm, the annualized term premium would have been 12% or more. Therefore, the position of professional traders seems neutral at the moment and is flirting with the downside.

To exclude externalities exclusive to the futures instrument, traders should also analyze options markets.

Options markets confirm that professional traders are not bullish

Whenever market makers and whales are bullish, they will ask for a higher premium on the call (call) options. This move will cause the delta asymmetry indicator to shift negative by 25%.

On the other hand, whenever the downside protection (put option) is more expensive, the 25% delta bias indicator will turn positive.

Ether options at 1 month Delta asymmetry of 25%. Source: laevitas.ch

Readings between minus 10% and plus 10% are generally considered neutral. The indicator had signaled a “scare” between May 20 and July 19, but quickly improved after maintaining support at $ 1,750.

Despite this, the current delta asymmetry of 25% to minus 4 is not sufficient to set up a “greed” indicator. Pricing in options markets is currently well balanced between call (buy) and put (put) options.

The two derivative measures suggest that professional traders gradually exited “fear mode” on July 20, but they are far from bullish.

Currently, there is little confidence in the recent rally in terms of these metrics, which is understandable given the risks presented by the next hard fork and the uncertainty caused by dissatisfied miners.

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