Ethereum futures always open in high demand – bullish or bearish?
Ether (ETH) has been struggling with the $3,600 level for the past three days, but traders may have overlooked the fact that the price of ETH has increased by 58.8% since February. Some market participants attribute the uncertainty to the potential approval of the spot ether exchange-traded fund (ETF) in the US, while others argue that the rise in open interest in ether futures reflects strong interest from institutional investors.
The Ether Spot ETF decision in May is crucial for the price of Ether.
The debate continues over the implications of the United States Department of Justice's lawsuit against cryptocurrency exchange KuCoin. On the one hand, the lawsuit is seen as negative for the industry due to the resulting strict regulatory landscape. However, some argue that this event will improve the prospects of approval of the Space Ether ETF on May 25, the day when the United States Securities and Exchange Commission (SEC) is expected to issue a final decision.
On March 26, the US Commodity Futures Trading Commission (CFTC) filed a complaint against KuCoin for illegal trading activities, specifically identifying Bitcoin (BTC), Ether and Litecoin (LTC) as ‘digital assets' that fall strictly under the CFTC. Authority. This position appears to directly contradict the SEC's assertions that Ether can be considered a security.
BlackRock CEO Larry Fink said in a March 27 interview on FOX Business that even if the asset is classified as a security by regulators, listing the Ether ETF is still viable. Meanwhile, on March 27 on the X social network, Bloomberg's senior ETF analyst James Seifert reiterated his prediction that it will be rejected in May, noting that the CFTC has recognized Ether as a commodity since at least February 2021 when CME allows Ethereum futures to start trading.
The growth of the Ether futures market is undoubtedly a positive development, as the increase in liquidity, especially in the regulated Chicago Mercantile Exchange (CME) market, facilitates the participation of hedge funds and large asset managers. However, the fact that total Ether futures open interest hit a new record high on March 28 should not be immediately interpreted as a bullish indicator.
It is important to note that Binance leads the pack, raising $4.55 billion in ETH futures markets, followed by Baybit with $2.4 billion. Meanwhile, open interest on CME Ether Futures currently stands at $1.3 billion. Therefore, it would be an understatement to attribute the recent improvement only to the interest of institutional investors.
Moreover, in every derivatives market, the number of long positions, which fight for price increases, always equals the number of short positions, which are betting. However, leverage can be used as an indicator of a market crash or bearish sentiment.
Ether derivatives reflect moderate optimism
Perpetual contracts, or reverse swaps, involve an amount that adjusts based on demand volatility. A positive funding ratio indicates an increase in demand for bullish positions, while a negative ratio indicates a preference for bearish positions.
Recent data shows an increase in demand for leveraged long positions in ETH, with current funding at 0.04%, or roughly 0.8% weekly. Typically, prices above 1.2% per week indicate excessive optimism, suggesting that traders are currently moderately bullish.
In order to accurately gauge the sentiment of professional traders, one should examine the data from the Ether options market. A 25% delta skew gives arbitrage desks and market makers insight into whether they are overpaying for upside or downside protection. In particular, a standard deviation above 7% indicates bearish expectations, but euphoria in the market usually results in a negative fall below -7%.
Related: Covered Call Options Strategy, Explained.
The delta skew of an Ether option shows an equilibrium price between calls and options, with a neutral market position. However, a comparison with the data from March 21, when the ETH skew gauge shows signs of optimism, suggests that traders are not very optimistic about the potential of Ether above $3,800.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
