Some analysts believe Visa’s initial transaction settlement in USD Coin (USDC) stablecoin the most recent rally started on the Ethereum network. Others attribute the current Ether walk to a “triangle market structure” outbreak
Regardless of the cause behind the recent 25% rally, professional traders seem very optimistic this time around. This conclusion can be reached by looking at the rising base of the future, which has reached its highest level ever.
This move carries increased risks of cascading liquidations due to excessive leverage from buyers, but professional traders appear confident, as the delta skew indicator shows.
Investors could anticipate the Protocol improvement proposal EIP-1559 goes live in July, which aims to solve the rising gas fees. The upgrade aims to use flexible block sizes instead of the current fixed model, and aims for network utilization of less than 50%.
To judge whether professional traders tend to be bullish, one should start by analyzing the futures premium (aka the basics). This indicator measures the price difference between futures contract prices and the regular spot market.
The 3-month futures typically trade at a premium of 10% to 20% on an annual basis, similar to the stablecoin loan rate. By postponing settlement, sellers demand a higher price, which creates the price difference.
The base on Ether futures has hit its all-time high at 38%, indicating that it is expensive for the leveraged longs. A base level above 20% isn’t necessarily a pre-crash alert, but buyers’ hubris could be a risk if the market falls below USD 1,750.
It is worth noting that sometimes traders increase their leverage during a rally, but buy the underlying asset (Ether) later to reduce the risk of futures.
Sometimes the high leverage of fixed month contracts is a result of retailers’ aggressive buying of perpetual futures. Whales, arbitrage desks and market makers avoid exposure to these contracts because of their variable funding rate.
Option markets also tend to be optimistic
To correctly interpret how professional traders weigh the risks of unexpected market movements, one should turn to the options market
The 25% delta skew provides a reliable and immediate “fear and greed” analysis. This indicator compares similar call (buy) and put (sell) options side by side and turns negative when the neutral to bearish premium for put options is higher than call options with similar risk. This situation is usually considered a “fear scenario”, although it often occurs after solid rallies.
On the other hand, a negative skew translates into higher costs for upside protection and indicates bullishness.
For the first time since February 5, the option skew indicator is bullish, although not far from the negative neutral threshold of 10%. In addition, the “fear and greed” indicator has continuously improved over the past five weeks.
Part of the reason behind the modest optimism lies in the fear of a sharp correction crossing the $ 2,000 psychological barrier, similar to that of February 19.
This time, however, the derivatives markets are healthy and professional traders seem to be building positions like Ether marks a new record ever
The views and opinions expressed here are solely those of the author and do not necessarily reflect Cointelegraph’s opinion. Every investment and trade move carries risks. You should do your own research when making a decision.