Based on the derivatives markets, Ether (ETH) traders remain confident that another rally is possible, despite the 23% correction on September 7th impacted the price.
The congestion on the Ethereum network also peaked on September 7th after the average fee hit $ 60 and has since been above $ 17. Because of the constant challenges the network was facing, investors with bridging and Layer 2 capabilities turned to Ethereum’s competitors. Polkadot (DOT) rose 29% and Algorand (ALGO) rose 67% over the past week.
Undoubtedly, interoperability and tier 2 scaling solutions are being sought with the aim of quickly meeting the explosive demand of non-fungible token markets (NFTs) and decentralized financial applications (DeFi).
Whether or not the Ethereum network maintains its position as the undisputed leader seems irrelevant at the moment, as the net worth locked in smart contracts (adjusted TVL) rose from $ 13.6 billion in December 2020 to $ 82 billion today.
Fears of future U.S. regulations are likely to curb investor optimism about cryptocurrencies. Legislators intend to fill a loophole that previously allowed investors to claim capital gains deductions, according to a document released by the House Committee on Monday. The IRS currently regards cryptocurrencies as “wash-sale” goods and is therefore exempt from the 30-day buy-back laws.
The brief test of the $ 4,000 mark on September 3 caused the futures markets to briefly go into surge mode. The 45-day rally saw Ether rise from $ 1,735 on July 20, up 130%. Meanwhile, support held at $ 3,200, adding to bullish sentiment, despite the altcoin falling 16% in eight days.
ETH futures data shows bulls are still bullish
Quarterly Ether Futures are the preferred instruments of the whales and the trading desks. Due to their settlement date and the difference in price to the spot markets, they can appear complicated to retailers. The most notable benefit, however, is the lack of a fluctuating funding rate.
These fixed-term contracts often change hands at a small premium to the spot markets, suggesting that sellers are charging more money in order to delay settlement longer. Consequently, futures should be traded in healthy markets at an annualized premium of 5% to 15%. This situation is known as contango and is not limited to the cryptocurrency markets.
As shown above, Ether futures contracts have had a decent premium of 8% since August 9th. Aside from the brief rally over 15% on September 7th, derivatives traders remained cautiously bullish.
To understand whether this move was reserved exclusively for these instruments, we also need to analyze the data on the perpetual futures contracts. Although longs (buyers) and shorts (sellers) in any futures contract coincide at any time, their leverage can vary.
Consequently, exchanges charge a financing fee from the party using the greatest leverage to offset their risk, and this fee is paid by the counterparty.
The data shows that there has been moderate excitement since September 2 that lasted less than five days. The positive funding rate shows that buyers paid the premium, but the move appears to be responding to the price surge and it faded when Ether crashed on September 7th.
There are currently no signs of weakness in the ether derivatives markets and this could be interpreted as a bullish indicator. Investors’ attention remains focused on regulatory developments and the development of ETH 2.0, all of which assume that they should completely solve the scalability problem.
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