Ether (ETH) price has surged 38.5% in the past month, crossing the $3,100 threshold for the first time since April 2022. The rise may be attributed to the anticipation of a potential Ethereum exchange-traded fund (ETF) in the United States, awaiting a decision from the Securities and Exchange Commission (SEC).
The growing demand for leverage has resulted in Ether futures open interest exceeding $10 billion, causing some concern among bullish investors. This is because the previous peak of $11 billion in November 2021 marked the all-time high for ETH, followed by a 55% drop.
But should Ether investors be worried this time around?
Data reveals that before February 12th, Ether futures open interest had not surpassed $8.5 billion for two years. However, in less than two weeks, it has reached $10.6 billion, indicating a significant increase in the desire for leverage in ETH positions. However, this metric does not consider any imbalance between longs (buyers) and shorts (sellers).
Airdrops and the potential for a spot Ethereum ETF are driving ETH’s current strength
According to analysts at JPMorgan, there is a 50% chance of an Ether ETF being launched by May. Some investors, like Keyrock’s CEO Kevin de Patoul, believe that the transition of Ethereum to a proof-of-stake model and the introduction of staking rewards could be seen as a security offering by the SEC.
In addition to the expectations for a spot Ethereum ETF, there has been a surge in capital flow towards liquid-staking derivative platforms, such as EigenLayer. This platform recently received $100 million in funding from a16z. In just 30 days, its total value locked (TVL) increased from $1.8 billion to $8.3 billion (as of Feb. 26).
Furthermore, there is also optimism surrounding ETH’s price due to recent airdrops, including the successful launch of the Starknet (STRK) layer-2 solution token on Feb. 20. Despite only attracting $160 million in TVL, the STRK market capitalization has reached $1.4 billion. Similarly, the upcoming token from layer-2 platform Blast has already received over $2 billion in deposits, despite a controversial launch in November 2023.
Ethereum derivatives continue to see strong demand for leveraged long positions
To determine the current sentiment of Ether investors following its 38.5% increase in value over the past 30 days, it is important to examine the ETH futures premium, also known as the basis rate. Professional traders tend to favor monthly futures contracts due to their lack of a funding rate. In stable markets, these contracts typically trade at a premium of 5% to 10% to account for their longer settlement period.
Data shows that since February 14th, the ETH futures premium has remained around 15%, which is considered a healthy level of bullishness with no signs of excessive leverage. This is in contrast to the 22% annualized premium seen on January 3rd, which posed a higher risk of liquidation as traders were overly optimistic based on this indicator.
In order to eliminate any external factors that may have influenced the Ether futures market, it is also important to analyze the options market. The 25% delta skew can provide insight into whether the recent price surge above $3,100 on February 26th has led to an excessive level of confidence among investors. In short, a skew metric above 7% would indicate a bearish sentiment, while a -7% skew is typically seen during periods of excitement.
However, data shows that the pricing between call (buy) and put (sell) options is currently balanced, with a skew metric of -3%. This has been the case since February 20th, suggesting that traders are somewhat skeptical of Ether’s ability to maintain its current price levels above $3,000.
In summary, derivative metrics for Ether are currently healthy, with the cryptocurrency reaching its highest value in 14 months and no signs of excessive leverage from bullish traders.
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