The premium for Ethereum futures reaches its highest level in a year. Will the price of ETH follow suit?
As news about a new spot ETF emerged, Ethereum (ETH) surged in tandem with Bitcoin. The altcoin could also find advantages in the underperformance of its layer-1 rivals.
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The price of Ether (ETH) has experienced a 14.7% decline since reaching its peak at $2,120 on April 16, 2023. However, two key derivatives indicators suggest that investor sentiment has not been this bullish in over a year. This discrepancy raises questions about whether the recent optimism is a broader reaction to Bitcoin breaking above $34,000 on October 24.
One potential reason for the surge in enthusiasm among investors using ETH derivatives may be the overall market's excitement regarding the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States. Amendments to spot Bitcoin ETF proposals are seen as a positive sign of progress and imminent approvals, according to analysts at Bloomberg. This development is expected to drive the entire cryptocurrency market to higher price levels.
Ether 1-month futures basis rate. Source: Laevitas.ch
Another factor contributing to the optimism among Ethereum investors using derivatives could be the pricing of the Dencun upgrade scheduled for the first half of 2024. This upgrade is set to improve data availability for layer-2 rollups, resulting in reduced transaction costs. It will also prepare the network for the future implementation of sharding as part of Ethereum's "Surge" roadmap.
Ethereum co-founder Vitalik Buterin has highlighted that independent layer-1 projects are gradually migrating and potentially integrating as Ethereum ecosystem layer-2 solutions. However, current rollup fees are considered unacceptable for many users, especially for non-financial applications.
Ethereum's competitors are facing challenges related to the costs of maintaining a complete record of network transactions. For instance, the popular blockchain explorer tool for Avalanche, SnowTrace, announced its shutdown due to high costs. These challenges highlight the difficulties associated with self-validating and storing data on single-layer chains, often leading to unexpected issues and outages.
In contrast, the Ethereum network has a track record of continuous upgrades and improvements over eight years, making it a reliable option despite high fees and processing capacity bottlenecks.
The bullish sentiment among Ethereum traders in derivatives markets can be seen in the Ether futures premium, which measures the difference between two-month contracts and the spot price, reaching its highest level in over a year. This indicates growing demand for leveraged ETH long positions.
Additionally, analyzing Ether options markets reveals an extremely low 25% delta skew, indicating a high level of optimism among traders. Protective put options are trading at a discount, a sign of excessive optimism.
Ether 30-day options 25% delta skew. Source: Laevitas.ch
In summary, the reasons behind the bullish sentiment among Ether investors in derivatives markets may include expectations of Ether spot ETF approvals, planned network upgrades to reduce transaction costs, and the relative reliability of Ethereum compared to its competitors.
