By Mark Ackman
Investors who have put their money into Ether seem unfazed by the regulatory obstacles that the cryptocurrency market is currently facing.
Instead, they are choosing to concentrate on the upcoming improvements to the Ethereum network.
ETH Trades In A Narrow Descending Range
Over the last few days, the value of Ether has been fluctuating within a small downward range.
Interestingly, even the news regarding Commodity Futures Trading Commission (CFTC) suing Binance failed to cause a break in the support level.
A legal complaint was lodged against Binance alleging that the company was offering trading services without a license. Similarly, earlier, Coinbase was issued a Wells notice by the US Securities and Exchange Commission (SEC).
Despite the rising regulatory risks, some traders may not be inclined to reduce their Ether holdings. However, it’s important to note that Binance currently has a hold on 35% of the outstanding interest in Ether futures.
The Ether derivatives markets could experience a substantial impact if traders are required to liquidate their holdings.
The market could also be impacted if liquidity is suddenly reduced due to US entities being prohibited from using Binance’s markets.
BitMEX Derivatives
BitMEX derivatives exchange experienced an outage for 30 minutes during a Bitcoin crash, resulting in a loss of its long-standing market dominance.
While the market recovered from this incident, it’s important to note that the outcome of the Commission’s action against Binance is unpredictable.
It would be unwise to assume that there is no probability of a service interruption. This is true even if customers can close their holdings and withdraw their assets.
Rather than concentrating solely on the price of Ether, it is crucial to closely track Ether derivatives. This will essentially allow insight into how professional traders will respond.
Traders Bullish on ETH Future Contracts
In a robust market, the two-month futures premium, when annualized, should typically fall within the range of 5% to 10%. This is while taking into account the related expenses and risks.
A contract that trades at a discount in comparison to regular spot markets is considered a bearish indicator. This indicates a lack of confidence among the traders.
This week, derivatives traders who utilize futures contracts displayed a slightly more optimistic outlook as the indicator increased to 4%.
Despite remaining under the neutral threshold of 5%, the futures premium hiked in four weeks. As a result, these traders were more assured that the market structure would continue to remain stable.
The rise in demand for leverage longs or bullish trades doesn’t necessarily imply an expectation of positive price movements.
Hence, traders must evaluate Ether’s options markets to determine how large players and liquidity providers are assessing the likelihood of price shifts in the future.
Option Markets Signal Confidence Despite Regulatory Pressure
Changes in market makers and arbitrage desks for protection against price moves in either direction can be indicated by the 25% delta skew.
During bear markets, a typically greater likelihood of a price decline is assigned by the options traders. This results in a skew indicator of over 8%.
Conversely, in bullish markets, the skew metric tends to drop under -8%, indicating lower demand for bearish put options.
The delta skew gauge has been showing an unbiased outlook since last week signifying like pricing for bullish and bearish options.
Nevertheless, considering that Ether’s value is approaching a seven-month high of $1,800, one would anticipate the protective put options to be priced higher. However, this isn’t the situation most likely.
The derivatives markets are displaying confidence despite the increased surveillance of exchanges like Coinbase and Binance.
The optimistic sentiment towards Ether’s prospects may also be influenced by the scheduled Shapella fork in April.
This will allow the withdrawal of Ether coins by validators from the Beacon Chain after EIP-4895 is activated.
Professional traders overall appear to be unworried about regulatory measures taken against Coinbase and Binance, as signified by the options and futures markets.