Now that the price of Ether (ETH) has surpassed the $ 2,000 level, reaching peaks this week, traders have become overly optimistic and expect higher in the short term.
Some analysts believe that the settlement of Visa’s initial dollar currency (USDC) transaction on the Ethereum network has initiated the most recent recovery. Others attribute the current increase in Ether to a breach of the “triangle market structure”.
Regardless of the cause behind the recent 25% rise, professional traders seem highly optimistic this time around. This conclusion can be reached by looking at the growing base of futures, which has reached its highest level ever.
This move brings greater risks of cascading liquidations due to excessive buyer leverage, but professional traders seem confident, as shown by the delta skew indicator.
Investors may be anticipating the proposal to improve the EIP-1559 protocol, set to go into operation in July, which aims to correct the increase in gas rates. The update intends to use flexible block sizes instead of the current fixed model and aims at a network utilization below 50%.
To assess whether professional traders are bullish, one should start by looking at the future premium (also known as the base). This indicator measures the price difference between the prices of futures contracts and the regular spot market.
3-month futures should generally be traded at an annualized premium of 10% to 20%, comparable to the stable loan rate. When postponing settlement, sellers demand a higher price, causing the price difference.
The base in ether futures corresponded to its highest increase of 38%, indicating that it is expensive for leveraged buyers. A basic level above 20% is not necessarily a pre-crash alert, but overconfidence by buyers can pose a risk if the market falls below $ 1,750.
It is important to note that traders sometimes increase their use of leverage during an increase, but then buy the underlying asset (Ether) to decrease the risk of futures.
Sometimes, the high leverage of fixed month contracts is a consequence of the aggressive purchase of perpetual futures by retail traders. Whales, arbitration boards and market makers avoid exposure in these contracts due to their variable financing rate.
Option markets are also on an upward trend
In order to correctly interpret how professional traders are balancing the risks of unexpected market movements, one should resort to the options market.
The 25% delta slope provides a reliable and instantaneous analysis of “fear and greed”. This indicator compares similar call (buy) and put (sell) options side by side and will be negative when the premium for neutral to pessimistic put options is greater than the similar risk call options. This situation is generally considered to be a “fear” scenario, although it is frequent after solid rallies.
On the other hand, a negative slope translates into a higher upside protection cost and points to an upward trend.
For the first time since February 5, the option distortion indicator is leaning upwards, although it is not far from the negative neutral limit of 10%. In addition, the “fear and greed” indicator has steadily improved over the past five weeks.
Part of the reason behind the modest optimism is the fear of a sudden correction after crossing the $ 2,000 psychological barrier, similar to that seen on February 19.
This time, however, the derivatives markets are healthy and professional traders appear to be building positions as Ether sets a new historical record.
The views and opinions expressed here are exclusively those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making a decision.