Ether has had a positive path this week. Thanks to this, futures traders are increasingly optimistic about the price of ETH in the short term. This conclusion can be reached by looking at the rising futures base, which has reached its highest level to date. Even the second largest cryptocurrency has $ 2,500 on the horizon.
Optimism on ETH soared after it hit a new all-time high along with interest in futures contracts
To assess whether professional traders are leaning higher, one should start by looking at the futures premium (also known as the basis). This indicator measures the price gap between the prices of futures contracts and the regular spot market.
3-month futures generally must trade at an annualized premium of 10% to 20%, comparable to the rate of stablecoin loans. By postponing the sale, sellers demand a higher price, causing the price difference.
The ETH futures basis has equaled its all-time high at 38%, indicating that it is costly for leveraged longs. A base level above 20% is not necessarily a pre-shock alert, but overconfidence from buyers could pose a risk if the market falls back below $ 1,750.
This move carries higher risks of cascading liquidations due to excessive buyer leverage, but professional traders appear to be confident.
Why is the Ether futures premium increasing?
Investors could be anticipating the EIP-1559 protocol upgrade proposal that will go live in July. This update seeks to fix the rising gas rates on the Ethereum blockchain. Also, it is 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 buy the underlying asset (ETH) to de-risk the futures. On the other hand, sometimes the high leverage of fixed month contracts is a consequence of aggressive perpetual futures buying by retail traders. Whales, arbitration desks, and market makers avoid exposure in these contracts due to their variable funding rate.
What is happening right now?
For the first time since the beginning of February, the options bias indicator is leaning to the bullish side. However, it is not far from the negative neutral threshold of 10%. Additionally, 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 after crossing the psychological barrier of $ 2,000. This time, however, the derivatives markets are healthy and professional traders appear to be building positions as ETH hits a new all-time high.