The Ether (ETH), price has fallen 13% behind Bitcoin (BTC), but is this significant? The altcoin still has outperformed BTC by 274% through 2021. However, traders are often shortsighted. Some will wonder if the Ethereum network can migrate to proof-of-stake (PoS validation) and solve the high gas fee issue.
Bitstamp.com: Bitcoin and Ether Prices Source: TradingView
Investors are also concerned by the increased competition from smart contract networks such as Solana (SOL), and Avalanche(AVAX).
EIP-1559 does not limit the supply of Ethereum if Ethereum has lots of transactions. This is a big problem with the meme “ETH is ultra-sound money”. As well as the $80 gas fee, it is possible for people to get tired of them and choose one of many alternatives (SOL or AVAX).
— dennis in SF // OP_CTV (@pourteaux) October 8, 2021
Cointelegraph reports that traders have been sparked by speculation about the approval of a Bitcoin exchange traded fund (ETF). Over the next few weeks, the U.S. Securities and Exchange Commission will announce its decision on several ETF requests. It is possible that the regulator may postpone these dates.
The recent price stagnation has not stopped professional traders from trading
The basis rate, also known as futures premium, is a measure of professional traders’ bearishness. This indicator measures the price gap between futures contracts prices and regular spot market prices.
The preferred instrument of choice for whales and arbitrage desks is Ether’s quarterly Futures. Although these derivatives can be confusing for retail traders because of the settlement date and price difference to spot markets, their greatest advantage is their lack of fluctuating funding rates.
Three-month basis rate for Ether futures. Source: Laevitas.ch
Three-month futures usually trade with a 5%-15% annualized premium following the stablecoin lending rates. Sellers can postpone settlement to demand a higher price. This causes the price gap.
The basis rate is still at 13%, which means that Ether’s failure of breaking the $3,600 resistance has not affected pro traders’ sentiment. This indicates that there is not excessive optimism at the moment.
For the past five week, retail traders were neutral
Inverse swaps are a type of perpetual contract that retail traders prefer to use. This allows them to pay a fee every eight hours to balance their leverage demand. Analyzing the futures market funding rate will help you understand whether panic selling has occurred.
Ether perpetual futures 8 hour funding rate Source: Bybt
The funding rate in neutral markets tends to fluctuate between 0% and 0.03% on either side. The fee is 0.6% per week, which indicates that the longs pay it.
There has not been any sign of high leverage demand, either from bulls or bees, since Sept. 7. This balance reflects the lack of demand from retail traders for leverage long positions but also shows that there is little panic selling and no excessive fear.
The recent downperformance of Bitcoin compared to Ether is not a concern for Ether investors in derivatives markets. Positively, it should also be noted that there is no excessive long leverage following a 274% year-to-date gain.
Ether traders appear ready for a rally higher than its all-time high by allowing for some bullishness while not compromising the derivatives markets structure. This is especially true if a Bitcoin ETF gets approved.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.