Ether has had a positive path this week. As a result, futures traders are increasingly optimistic about the price of ETH in the short term. This conclusion can be reached by looking at the base of rising futures, which has reached its highest level to date. Even the second largest cryptocurrency has $ 2,500 on the horizon.
Optimism about ETH skyrocketed after it hit a new all-time high along with interest in future contracts
To assess whether professional traders lean upwards, you should start by analyzing the futures premium (also known as base). This indicator measures the price gap between futures contract prices and the regular spot market.
3-month futures should generally be traded at an annualized premium of 10% to 20%, comparable to the stablecoin lending rate. By postponing settlement, sellers demand a higher price, which causes the price difference.
The base of ETH futures has equaled its all-time high at 38%, indicating that it is costly for leveraged longs. A baseline above 20% is not necessarily a pre-crash alert, but overconfidence from buyers could pose a risk if the market recedes below US$ 1,750.
This move carries higher risks of cascading liquidations due to excessive buyer leverage, but professional traders seem to be confident.
Why is Ether futures premium increasing?
Investors could be anticipating the proposed improvement of the EIP-1559 protocol that will go live in July. This update seeks to fix rising gas rates on the Ethereum blockchain. It is also intended to use flexible block sizes instead of the current fixed model. Everything points to a network utilization below 50%.
It is also a fact that traders sometimes increase their use of leverage during a rally, but then purchase the underlying asset (ETH) to remove the risk from futures. On the other hand, sometimes the high leverage of fixed month contracts is a consequence of the aggressive purchase of perpetual futures made by retail traders. Whales, arbitrage tables and market makers avoid exposure in these contracts due to their variable funding rate.
What is happening right now?
For the first time since early February, the option bias indicator is tilting to the bullish side. However, it is not far from the negative neutral threshold of 10%. In addition, the indicator of “fear and greed” has continuously improved over the past five weeks.
Part of the reason behind the modest optimism lies in the fear of a strong correction after crossing the psychological barrier of$ 2,000. This time, however, derivatives markets are healthy and professional traders seem to be building positions as ETH marks a new all-time high.