Data on Ethereum futures and options reflects investors’ growing confidence in ETH price


The price of Ether (ETH) rose 16% between January 14 and January 21, peaking at $1,680, before facing a 5.4% rejection. Oddly enough, the same level of resistance in late August and again early November 2 resulted in a substantial correction.

Ether/USD price index, 2 days. Source: TradingView

On the one hand, traders are relieved to see Ether trading up 35.5% year-to-date, but the repeated corrections following retests of the USD 1,680 resistance may have weakened investor sentiment.

A negative news flow may have curbed Ether investors’ appetites after troubled cryptocurrency firm Digital Currency Group (DCG) faced more legal trouble this week. On January 23, a group of Genesis Capital creditors filed a lawsuit alleging violations of federal securities laws. In addition, the plaintiffs allege that the lending company made false and misleading statements through a scheme to defraud potential and existing digital asset lenders.

Another new concern for Ether holders came on Jan. 22 after a “temperature check” proposal to deploy the Uniswap v3 protocol for BNB Chain received overwhelming support from the Uniswap community. Approximately 80% of Uniswap’s UNI governance token holders have voted to deploy the supplemental version of the decentralized exchange protocol.

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On the bright side, Ethereum developers have created a test environment for the upcoming network upgrade in Shanghai. According to Ethereum developer Marius Van Der Wijden, the testnet appears to have been created to evaluate staking recordings, which are currently disabled on the mainnet. More than 14.5 million ETH (worth $23 billion) has been deposited into the Ethereum staking contract, and harsh criticism has followed the many delays in enabling withdrawals.

Let’s take a look at Ether derivatives data to understand whether the $1,680 price rejection has affected crypto investor sentiment.

ETH futures are finally entering neutral territory

Retailers usually avoid quarterly futures because of their price differential from spot markets. Meanwhile, professional traders prefer these instruments because they avoid the fluctuations of the funding rates in a perpetual futures contract.

The three-month annualized futures premium should trade between 4% and 8% in healthy markets to cover the costs and associated risks. When the futures are trading at a discount to regular spot markets, it shows a lack of confidence from leveraged buyers and is a bearish indicator.

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Ether 3-month annualized futures premium. Source: Laevitas

The chart above shows that derivatives traders are no longer bearish as the Ether futures premium hit the 4% threshold for neutral markets. So bulls can celebrate that the indicator has shifted to a modest premium, but that doesn’t mean traders expect the immediate result of positive price action.

For this reason, traders should analyze Ether options markets to understand how whales and market makers assess the probabilities of future price movements.

Options traders are comfortable with the downside risk

The 25% delta skew is a telltale sign when market makers and arbitrage desks are charging too much for upside or downside protection.

In bear markets, option investors give higher chances of a price fall, pushing the skew indicator above 10%. On the other hand, bullish markets tend to push the skew indicator below -10%, which means that the bearish put options are discounted.

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Ether 60-day options 25% delta skew: Source: Laevitas

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The delta skew has stabilized around 0% over the past week, indicating that Ether options traders are presenting neutral sentiment. That is in stark contrast to late 2022, when the 25% skew index hovered around 18%, indicating a lack of comfort in taking downside risks.

Ultimately, both the options and futures markets indicate that pro traders are moving from the neutral-to-bearish sentiment to a neutral positioning, meaning no discomfort after the rejection at $1,680 and subsequent correction.

Consequently, the odds are in favor of Ether bulls as negative news flow failed to prevent 35.5% year-to-date gains and demand for shorts using futures contracts remains thin.