The Ether (ETH), price has risen 16% since July 1, and has outperformed Bitcoin in the past 7 days. Investors may be holding on to hope that the Ethereum network’s transition to proof of stake (PoS consensus) will prove to be a bullish catalyst.
Next steps for this smart contract include “the Merge”, previously known as Eth 2.0. Before the upgrade of the Ethereum mainnet, the final trial on the Goerli network will be completed in July.
Terra’s ecosystem fell in May, and Ethereum’s total worth locked (TVL), has increased. The flight-to-quality industry in decentralized finance (DeFi), has largely benefited Ethereum because of its strong security and battle-tested apps, such as MakerDAO.
Market share is the total value that has been locked in. Source: Defi Llama
According to data from Defi Lama, Ethereum holds a 57% share of TVL’s market. This is up from 51% as of April 8. This gain is small in comparison to the $100 billion deposit on smart contracts of the networks, which was recorded in December 2021.
The drop in Ethereum’s median transfer fees (or gas costs) of $1.32, further supports the decline in decentralized application usage. This is the lowest figure since mid-December 2020, when the network’s TVL was $13 billion. One could attribute some of this movement to higher usage of layer-2 solutions like Polygon or Arbitrum.
Options traders love the neutral range
Ether’s data on derivative markets should be reviewed by traders to see how market makers and whales are positioned. The 25% delta skew, which is indicative of professional traders charging too much for downside or upside protection, is telling.
Investors expect Ether price will rally. The skew indicator changes to -12% or less, which indicates general excitement. A skew higher than 12% indicates a reluctance or refusal to adopt bearish strategies. This is typical for bear markets.
Ether 30-day options 25% delta-skew: Source: Laevitas.ch
On July 7, the skew indicator briefly crossed into neutral-to-bearish territory as Ether achieved a 19% rally within four days. However, option traders quickly shifted to a conservative approach and increased the chances of a market decline as the skew reached the 13% level. The index is more inclined to price downside risk than the traders.
Margin traders are extremely bullish
One can verify that these movements were not restricted to the options instrument by looking at the margin markets. Investors can leverage their positions to purchase more cryptocurrency by lending. The Ether price rise will affect the gains and losses of savvy traders who open margin longs.
Bitfinex margin traders have a reputation for creating position contracts worth 100,000 ETH or more in very short periods of time. This is a sign of large arbitrage desks and whales.
Bitfinex ETH margin longs. Source: Coinglass
These margin traders have noticed a significant increase in their longs since June 13, and the current 491,000 contracts are at its highest level for 8 months. These traders don’t expect a catastrophic price rise below $900, as evidenced by the data.
Although there hasn’t been any significant shift in the options risk metrics for pro traders, margin traders remain bullish. They are not willing to reduce their longs despite “crypto winter.”
If market makers and whales believe $880 on June 18, was the absolute bottom, traders might begin to believe the worst leg in the bear market is over.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.