ETH price has shown a strong recovery since bottoming at $2,500, but derivatives data suggests pro traders are moving with caution.
Ether (ETH) price jumped 11% between March 26 and March 29 to reach $3,480, which is the highest level in 82 days. Currently, the price is down 9% year-to-date. Does data support the belief that the altcoin has resumed its uptrend toward a new all-time high?
Institutional investors seem excited that the CoinShares Digital Asset Fund Flows Weekly Report revealed on March 29 that the exchange-listed crypto products inflows reached the highest level in three months. Data showed that investment products for digital assets saw net deposits of $193 million last week.
At the same time, the Office of Science and Technology Policy, an executive office of the President of the United States, launched a study to offset energy use related to digital assets. Furthermore, on March 9, U.S. President Joe Biden signed an executive order directing various federal agencies to examine the implications of digital assets.
The Ethereum network‘s planned move to proof-of-stake consensus can also explain some of its outperformance versus Bitcoin. The transition has been postponed multiple times, although Q1 of 2022 was mentioned on the official roadmap. By eliminating the burden of digital mining, Ethereum plans to become more efficient and allow cheaper and faster transactions.
Even with the anticipation of the PoS upgrade, the rally of the past three days is not enough to cause Ether pro traders to flip bullish, according to derivatives metrics.
The Ether futures premium is neutral
To understand how larger-sized traders are positioned, one should look at Ether‘s futures and options market data. For instance, the basis indicator measures the difference between longer-term futures contracts and the current spot market levels.
The annualized premium of Ether futures should run between 5% and 10% to compensate traders for “locking in” the money for two to three months until the contract expires. Levels below 5% are bearish, while numbers above 10% indicate excessive demand from longs (buyers).
Ether 3-month futures’ annualized premium. Source: Laevitas
The above chart shows that Ether‘s basis indicator recovered from 2% on March 13 to the current 6%. This level exceeds the 5% bear sentiment threshold but at the same time signals a weak demand for opening ETH futures longs.
Even though the metric points to a neutral-to-bearish sentiment, one must remember that Ether remains down 9% year-to-date and 28% below its $4,800 all-time high.
Options traders fear ETH could drop lower
The 25% options delta skew is extremely useful, as it shows whether arbitrage desks and market makers are overcharging for upside or downside protection.
If option investors fear an Ether price crash, the skew indicator will move above 10%. On the other hand, generalized excitement reflects a negative 10% skew.
Related: Waiting on the executive order: how users and financial professionals may benefit from it
Ether 30-day options 25% delta skew: Source: Laevitas
The skew indicator dropped below 10% on March 18, exiting the “fear” level as these options traders are no longer overcharging for downside protection. The current 7% level remains close to a bearish threshold.
Although there was a modest improvement in Ether‘s futures premium, the indicator remains neutral. Basically, ETH options markets are pricing a slightly higher risk for downside, so professional traders are not confident that the current $3,400 support will hold.
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