The Ether (ETH), derivatives market traders still believe there is more upside, despite the fact that prices took a hit from the 23% correction of Sept. 7.
The Ethereum network congestion reached its peak on Sept. 7, when the average transaction fee was $60. It has remained at $17 since that time. Due to the persistent challenges faced by the network, investors have moved into Ethereum competitors that offer layer-two and bridge capabilities. Polkadot’s DTO rose 29% in the last week, while Algorand’s ALGO jumped 67%.
There is a constant quest for interoperability, layer-two scaling solutions and layer-three integration, which aim to meet the rapid demand for decentralized finance (DeFi), and nonfungible tokens.
It seems unlikely that the Ethereum network can maintain its absolute leadership position. The industry’s net (adjusted to total value) locked in smart contracts has increased from $13.6 billion in Dec 2020 to $82 billion today.
Investors’ optimism about cryptocurrencies is likely to be impacted by regulatory fear from the United States. A House committee document was released on September 13 and states that lawmakers are seeking to close a loophole which previously allowed investors capital gains deductions. The Internal Revenue Service considers cryptocurrency property in “wash sales” and exempts them from the 30-day repurchase rules.
Bistamp price in USD for Ether Source: TradingView
Shortly, the $4,000 test on September 3 temporarily triggered derivatives markets into overdrive. Ether’s price rose by 130% during the 45-day rally. It was $1,735 higher than July 20th. The $3,200 support was held firm and increased bulls’ confidence, even though the altcoin fell by 16% over eight days.
ETH futures data show bulls remain “bullish”.
The preferred instrument of choice for whales and arbitrage desks is Ether’s quarterly Futures. Retail traders might find them difficult due to the settlement date and price difference from spot market. Their greatest advantage is their lack of fluctuating funding rates.
Fixed-month contracts trade at a slightly higher premium than spot markets. This is because sellers are willing to pay more to hold settlements longer. Futures should be traded at a 5%- 15% annualized premium in healthy markets. This is called “contango”, and it is not only for crypto markets.
ETH futures 3 month annualized premium Source: Laevitas
As shown above, Ether’s futures contracts hold a decent premium of 8% since Aug. 9. Except for a brief spike above 15% on Sept. 7, derivatives traders remain cautiously optimistic.
It is important to analyze the futures data for perpetual contracts in order to determine if this movement was only limited to these instruments. Although longs (buyers and shorts) are always matched in every futures contract, their leverage can vary.
Exchanges will therefore charge a funding fee to the side that uses more leverage to balance its risk. This fee is also paid to the opposite side.
ETH perpetual futures 8 hour funding rate Source: Bybt
Data shows that there was a very small amount of excitement starting on Sept. 2 and lasting for less than 5 days. Although the positive funding rate indicates that longs (buyers), were paying the fees, the movement seemed to be reactive to Ether’s price rise. It ended on Sept. 7.
There are currently no signs of weakness in Ether derivatives markets at the moment. This could be taken as a bullish indicator. Investors are still focused on Ethereum 2.0 and developments in regulation, which should resolve the scaling problem.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.