Waiting game: Why Friday’s $6B in Bitcoin and Ethereum expiries may not move the market

June 24, 2021 Coin Telegraph

Waiting game: Why Friday’s B in Bitcoin and Ethereum expiries may not move the market

Traders are looking for BTC and ETH to make a decisive move ahead of Friday's $6 billion in quarterly futures and options expiries, but what does back-tested data show?

After an incredible start in 2021, Ether peaked at $4,380 on May 12 but has dropped 55% since then. Unlike the leading cryptocurrency, the Ethereum network faces competition from projects that do not depend on proof-of-work, hence not facing the bottleneck issues that caused transaction fees to skyrocket.

Whenever markets disappoint traders with a negative surprise, traders quickly seek external explanations for their failure to interpret signals. But, in reality, a clear indication that China was concerned about the crypto mining energy consumption came out on April 30, six weeks ahead of the initial price crash.

On May 6, recently confirmed U.S. Securities and Exchange Commission chair Gary Gensler punted to congress on providing more regulatory oversight to the crypto space. However, in defense of excessively optimistic investors, similar promises have circulated for over four years.

Regardless of the many reasons behind the recent negative market performance, traders like to blame someone for their mistakes, and what better scapegoat than derivatives markets?

Cointelegraph was the first news outlet to analyze the $2.5 billion Bitcoin futures expiry, potentially giving bears a $450 million lead if the price fails to hold $32,000 on June 25. On June 12, Cointelegraph said that Ether's $1.5B monthly options expiry would be a make-or-break moment, as 73% of the neutral-to-bullish options would be worthless below $2,200.

Updated open interest figures show a $1.36 billion open interest for Ether options and another $500 million worth of futures contracts to expire on Friday. Meanwhile, Bitcoin's options open interest has grown to $2.64 billion, while another $1.44 billion is set to expire in futures markets.

To understand whether derivatives markets, mainly the quarterly expiries, hold such a significant impact on prices, investors need to evaluate the past expiries.

December 2020 and March 2021 reflect diverging movements

In November 2020, Bitcoin initiated a strong rally, accumulating 75% gains ahead of the December expiry.

*Bitcoin price on Dec. 2020 and Mar. 2021 expiries. Source: TradingView*

Over 102,000 Bitcoin options matured on Christmas day, but there was no apparent impact. Instead, the bull trend continued as Bitcoin subsequently rallied another 69% in 12 days.

March 2021, on the other hand, showed completely different price action. Bitcoin price plunged 14% ahead of the options expiry, although it fully recovered over the next four days.

It is worth noting that on March 22, the U.S. Federal Reserve Chair Jerome Powell said, "Bitcoin is too volatile to be money" and "backed by nothing."

In that same week, billionaire fund manager Ray Dalio raised concerns on a possible "U.S. Bitcoin ban."

March, June, and September 2020 showed no signs of a dump ahead of expiry

If March 2021 could have built a possible case for dumping activity ahead of expiry, the previous year faced an opposite movement.

*Bitcoin price on March, June, and Sep. 2020 expiries. Source: TradingView*

Bitcoin went on a 31% bull run in the ten days leading to the March 26, 2020 expiry. However, an 11% correction took place the following day, therefore potentially building a case for investors to cite 'manipulation.' However, the 45% hash rate drop that surrounded the date partially explains the sell-off.

The June 26 expiry did not seem to significantly impact price because Bitcoin dropped 2% before the event and another 2% over the next two days. However, an exact inverse pattern occurred on the September 2020 expiry when Bitcoin hiked 2% ahead of Sept. 25 and continued to increase by 2% over the following two days.

Options and futures expiries cannot be deemed bearish or bullish

As the data from the previous five quarterly expiries show, there is absolutely no indication of a pump and dump (or inverse) movement ahead of the derivative events.

For investors and traders waiting for a bottom confirmation, the answer probably lies in Bitcoin's hash rate recomposition.

One should also account for Chinese over-the-counter traders re-establishing their fiat gateways after the recent nationwide ban on cryptocurrency transactions.

Bitcoin price has slightly recovered from its sharp dip below $29,000, but generally, the past month has not been generous to BTC and Ether (ETH). Bitcoin has failed to break the $40,000 resistance multiple times, and the recent dip to a six-month low at $28,800 was a startling sign for many investors.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Wishy-washy bulls turn bearish on Ethereum price despite positive data

May 24, 2021 Coin Telegraph

Coin Telegraph

A few months ago traders were uber bullish on ETH at $2,100, so why are they bearish now that the altcoin trades for the same price?

Ether's (ETH) futures premium has gone through a complete cycle, from April's extreme euphoria to the present level, which is the most bearish in six months.

Believe it or not, in both situations, Ether's price was roughly $2,100. This change shows how investors' mood depends on a few weeks' performances and holds no relation to longer timeframes.

By analyzing the futures markets' price difference versus regular spot exchanges, traders can better understand how the price move has impacted professional traders. Typically, the 3-month futures should trade with an 8% to 15% annualized premium, comparable to the stablecoin lending rate. By postponing settlement, sellers demand a higher price, causing the price difference.

*OKEx 3-month Ether futures annualized premium. Source: Skew*

On April 13, the Ether futures premium peaked at 47%, indicating extreme optimism. Ether had rallied 36% to a $2,150 all-time high on April 2, and euphoria settled in as it surpassed the $2,200 resistance. At the same time, the decentralized finance (DeFi) net value locked reached $50 billion, and analysts painted a $10,000 target for year-end.

The bull run was also fueled by EIP-1559 expectations, a proposal that could result in Ether being burned at a rate exceeding the creation of new supply.

*Ether / USD at Coinbase. Source: TradingView*

On April 17, a 20% crash took place, causing a $1 billion long futures liquidation. That number represented 12.5% of the outstanding contracts, reducing the 3-month futures premium to 25%. This optimistic level carried on as Ether recovered the $2,500 mark.

What caused the change in sentiment?

On April 25, Ether initiated a 100% rally that took the price to $4,170 in just 17 days. One would expect the 3-month premium to have soared above 40%, but that did not happen. Somehow, longs were less likely to use excessive leverage compared to the previous month. Traders seemed skeptical of the surprising rally above $3,000 and therefore avoided leverage longs.

On May 19, as Ether posted a 45% flash crash down to $1,870, the futures premium finally abandoned its optimistic level and moved below 16%. The futures premium remained relatively steady at 17% even as Ether's price crashed 30% between May 12 and May 17. From what the data shows, most traders refused to believe that the trend had reversed and kept opening leveraged long positions despite the $2.8 billion liquidations.

Ether futures finally completed the entire cycle as the futures premium went below 8% on May 21, marking a bearish sentiment. It is worth noting that this level was unseen since early November 2020.

*Ether futures aggregate open interest, USD. Source: Bybt*

The chart above shows just how short-sighted traders are as Ether's price is 450% above the $380 seen in November 2020. The futures open interest soared from $1 billion to the current $5.4 billion. Moreover, daily active addresses on the network rose from 550,000 to 750,000.

As things currently stand, there isn't a single metric pointing to worsening fundamentals compared to 6 months ago.

However, investors seem unable to display bullishness due to the recent 56% correction in 12 days. The lesson here is that investors should 'zoom out' instead of blindly trusting short-term market indicators and sentiment.

Flippening? Record $10B Ethereum futures volume briefly outpaces Bitcoin’s

May 6, 2021 Coin Telegraph

<div>Flippening? Record B Ethereum futures volume briefly outpaces Bitcoin's</div>

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The volume on Ethereum futures flipped Bitcoin's after hitting a new record at $10 billion, and derivatives data suggests further upside for Ether price.

In the past 30 days, Ether (ETH) price decoupled from Bitcoin (BTC) to post a 67.5% gain, while the leading cryptocurrency price has barely moved. Ether's $3,605 all-time high on May 5 was responsible for boosting the asset's futures open interest to $10 billion.

This movement brings up some crucial questions as the dominance of Bitcoin's derivatives markets appears to be challenged at the moment. On May 4, Ether's aggregate futures volumes surpassed Bitcoin's for the first time in history.

*Ether and Bitcoin aggregate* *futures volume, USD. Source: Coinalyze*

Volume data from Coinalyze shows that $2.6 billion CME Bitcoin futures traded, along with $1.1 billion in CME Ether futures on May 4. However, Ether's aggregate volumes led by $87 billion versus Bitcoin's $81 billion.

Some might argue that volumes aren't as relevant as open interest, which is a fair assessment. Open interest represents the total number of contracts in play, regardless if they have been traded on a specific date. In that sense, Bitcoin still has double Ether's $10 billion futures open interest.

The above chart shows Ether futures mind-blowing 117% increase in two months. It is also worth noticing CME's contracts reaching a $460 million open interest, a seven-fold increase since March.

Ether's soaring futures volume signals increasing interest from traders

To assess whether the market is leaning bullish, one should analyze its premium. The premium measures the price gap between futures contract prices and the regular spot market. This indicator is commonly referred to as basis and should indicate a 10% to 20% annualized premium.

The stablecoin lending rate is the main reason behind this discrepancy, as futures participants are withholding settlement by opting for derivatives contracts.

*OKEx 3-months ETH futures basis. Source: Skew*

The chart above shows that Ether's futures premium peaked at 45% in mid-April and has since normalized near 25%. This data is very encouraging as it signals that there is not extreme optimism despite the Ether price reaching back-to-back all-time highs.

While some analysts will interpret this data as a 'glass half full,' others might say it represents a lack of conviction from professional traders. Regardless of the viewpoint, it is important to account for the impact of the carry trade, which negatively pressures the basis indicator.

Investors aiming for a fixed-income trade will short Ether futures contracts while simultaneously buying spot Ether.

Overall, there seems to be healthy growth in Ether's futures markets, regardless of how one interprets the data.

As for an eventual Bitcoin open interest 'flippening,' this seems a long way from happening. Either way, the overall increase in cryptocurrency derivatives is beneficial for the market.

Ether options open interest grows 80-fold amid rising institutional appetite

April 27, 2021 Coin Telegraph

Coin Telegraph

Open interest in Ether options trading has increased from $50 million to $4 billion over the last year.

The massive growth of Ethereum’s futures and options arena is reportedly pointing toward significant institutional involvement in the second-largest cryptocurrency by market capitalization.

According to a recent report by crypto investment advisory firm Two Prime Digital Assets, the 80-fold growth in Ether (ETH) options open interest goes beyond mere retail speculation. As part of its report, the firm argued: “Institutional money managers have moved in to start hedging net long portfolios against outsized volatility events.”

The same exponential growth can also be seen in the ETH futures market. Indeed, data from crypto aggregator Bybt shows the open interest in ETH futures experiencing a 20-times increase within the same period and now sits at over $7.68 billion as of the time of writing.

Amid the growing institutional demand for ETH, Two Prime also predicted that Ether will decouple significantly from Bitcoin’s (BTC) price action. The Two Prime report also maintained that the involvement of big-money players will cause a steady decrease in realized volatility.

In another example of the apparent increase in institutional appetite for Ethereum, the CoinShares “Digital Asset Fund Flows Weekly” report saw ETH bucking the trend of investment product outflows for crypto assets.

According to the crypto investment manager’s report on Monday, ETH saw $34 million in investment product inflows for the past week. This figure puts the total ETH inflow for crypto fund managers at $792 million — about 8% of the total asset under management for these funds, according to CoinShares.

The $34-million ETH investment inflow came amid Bitcoin’s lowest weekly inflow numbers since October 2020. Indeed, fund movements were primarily outflows for BTC, with $21 million (the largest weekly outflow recorded) moving the other way.

As previously reported by Cointelegraph in February, ETH represented about 80% of the institutional crypto inflows in the first week of the month.

3 key Ethereum price metrics show pro traders are aiming for $2K ETH

March 3, 2021 Coin Telegraph

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Coin Telegraph

Multiple data points show investors are strongly bullish on Ethereum price even after ETH’s recent 36% correction below $1,300.

On Feb. 20, Ether (ETH) price rallied to a new high at $2,015 and this caused multiple indicators to display signs of excessive optimism. While the excitement could be easily justified by Ether's year-to-date 176% gain, these warning signs should not be ignored.

On of the primary driving factors of the current bullish sentiment is the launch of CME ETH futures and Grayscale Investments ETH Trust reaching $6.3 billion assets under management. The DeFi phenomenon also continues as there is currently more than $21 billion worth of Ether locked in DeFi.

*Crypto Fear & Greed Index. Source: alternative.me*

Currently, the Crypto Fear & Greed Index is at 93, indicating "Extreme Greed" according to its methodology. Many traders use the metric as a counter trading signal, meaning, the extreme fear level can be a sign that investors are bullish and a buying opportunity is present. In contrast, when investors are getting too greedy, it could be a sign that the market is due for a correction.

Unlike the excessively leveraged retail traders, the more experienced market makers and whales hs been skeptical of the never-ending rally in Ether. Regardless of the rationale for the price peak, the 36% price correction that followed was accelerated by large liquidations.

*Ether futures contracts aggregate liquidations. Source: Bybt.com*

The liquidation of $2 billion in long futures contracts from Feb. 19 to Feb. 23 represented 28% of the total open interest. Thus, one should expect significant deterioration in market sentiment, as depicted on the previous Fear & Greed indicator.

Surprisingly, none of that happened on the Ether derivatives markets, as both futures contracts premium (contango) and the options skew remained bullish.

The futures premium held very healthy levels

By measuring the expense gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market.

The 3-month futures should usually trade with a 10% or higher premium versus regular spot exchanges. Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is known as backwardation and indicates that the market is turning bearish.

*OKEx 3-month ETH futures basis. Source: Skew.com*

The above chart shows that the indicator peaked at 39% on Feb. 20 as Ether touched its all-time high. Nevertheless, it has kept above 16% during the entire correction down to $1,300. This data shows that professional traders remained confident in Ether's price potential.

The options skew remained neutral-to-bullish

When analyzing options, the 25% delta skew is the single-most relevant gauge. This indicator compares similar call (buy) and put (sell) options side-by-side.

It will turn negative when the put options premium is higher than similar-risk call options. A negative skew translates to a higher cost of downside protection and indicating bullishness.

The opposite holds when market makers are bearish, causing the 25% delta skew indicator to gain positive ground.

*ETH options 25% delta skew. Source: laevitas.ch*

Over the past month, there hasn't been a single incident of a sustainable positive delta skew. Therefore, there is no evidence that option traders demanded more significant premiums for downside protection.

This data is very encouraging, considering that Ethereum faced a heavy sell-off but the futures and options metrics discussed above held bullish levels during the downturn.

As Ether managed to recover quickly from its recent $1,300 dip, investors gained further confidence that the uptrend had not been broken.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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