Ethereum has strong fundamentals, but why are professional traders pessimistic about ETH?

Ether (ETH) has outperformed Bitcoin (BTC) by 32% since May And while there is a steady stream of bullish reports from JP Morgan Yes Goldmann Sachs, Derivatives metrics show bearish elements in both assets.

Price changes of Ether and Bitcoin since May 2021. Source: TradingView

Bitcoin is trading 41% below its all-time high of $ 64,900, and this move has driven the Crypto Fear and Greed Index to its lowest level since March 2020. While retailers fear downturns, professionals like it global investment company Guggenheim Investments have filed an application with the US Securities and Exchange Commission for a new fund that can seek exposure to Bitcoin.

The billion dollar investor Stanley Druckermiller reiterated his optimistic stance on Bitcoin as he said:

“I think BTC won the store of store game because it’s a brand that has been in the market for 13-14 years and has limited supply.”

The dynamism of the Ethereum network was impressive

Ethereum has strong fundamentals, but why are professional traders pessimistic about ETH?
Ethereum has strong fundamentals, but why are professional traders pessimistic about ETH?

Ethereum outperformed Bitcoin in terms of revenue and miners’ worth moving through the network, just like a report from Goldman Sachs announced that the global investment bank believes that ether has a “high probability of overtaking Bitcoin as the dominant store of value”. The report notes the growth of the decentralized financial sector and the non-fungible token ecosystems that are built on Ethereum.

Income of Bitcoin and Ethereum miners in USD. Source: CoinMetrics

See how Ethereum miners’ earnings fared well above Bitcoin’s earnings in May and a daily average of. achieved $ 76 million. This number overshadows the $ 45 million of Bitcoin miner’s earnings, including the reward of 6.25 BTC per block, plus transaction fees.

A similar situation occurred with the value that was moved and transmitted on each network. For the first time, Ethereum presented a significant advantage through this metric.

Average daily transactions on the Bitcoin and Ethereum network in USD. Source: CoinMetrics

The graphic above shows that Ethereum’s network moves an average of $ 25 billion a day, 85% more than Bitcoin’s. Stablecoins certainly played a role, but so did the $ 50 million net worth locked into DeFi apps.

The futures premium has declined slightly

When evaluating the premium of futures contracts (basis), both Bitcoin and Ether show a similar bearish sentiment. The basis measures the difference between long-term futures contracts and the current spot market level.

One-month futures contracts usually change hands at a premium of 10-20% over regular spot exchanges to justify blocking funds instead of paying them out immediately.

Annualized premium of Bitcoin and Ether futures on OKEx. Source: Skew

As can be seen in the previous graphic, the futures premium has been below 10% for both Bitcoin and Ether since the slump on May 19. This suggests a little bearish sentiment, although far from a negative indicator known as Backwardation.

The 25% slope of the delta indicates “fear”

To measure the optimism of ether traders, you need to analyze the 25% slope of the option delta. The ratio becomes positive if the premium for risk-neutral to bearish put options is higher than that of risk-like call options. This situation is often viewed as a “scary” scenario. On the flip side, a negative reading translates into higher upside protection costs and indicates bullish sentiment.

25% slope of the delta of the ether options. Source: Laevitas.ch

Like the futures premium, the 25% increase in the ether options delta has been above 10% since May 19. This suggests that market makers and whales are unwilling to offer protection against loss, which suggests “fear”.

Though far from a very unfavorable situation, both indicators for ether derivatives suggest a complete lack of optimism, although the altcoin is up 270% so far this year.

Given these disappointing data, some analysts believe the glass is “half full” as it leaves room for a positive surprise. The Ethereum 1559 Enhancement Proposal or EIP-1559 expected in July will create a basic network fee that would fluctuate depending on network activity. The update also suggests burning transaction fees, introducing a deflationary aspect into the Ethereum ecosystem. Rick Delaney, OKEx analyst said that “It can make the asset more attractive to the world’s richest investors.”

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risks, you will need to do your own research when making a decision.

Similar Posts