Ether (ETH) has been struggling to break through the $3,600 level in the past three days, but it’s important to note that the price of ETH has actually surged by 58.8% since February. While some traders believe that the uncertainty surrounding the approval of a spot Ether exchange-traded fund (ETF) in the U.S. is limiting the upside, others argue that the increase in Ether futures open interest indicates strong demand from institutional investors.
The decision on the spot Ether ETF in May is crucial for the price of Ether. The recent indictment of the cryptocurrency exchange KuCoin by the United States Justice Department has sparked a debate on its implications. Some view it as negative for the industry due to the stricter regulations that may follow, while others believe that it actually improves the chances of a spot Ether ETF being approved by the U.S. Securities and Exchange Commission (SEC) by May 25.
On March 26, the U.S. Commodity Futures Trading Commission (CFTC) filed a complaint against KuCoin for illegal trading activities and classified Bitcoin (BTC), Ether, and Litecoin (LTC) as “digital assets that are commodities” falling under its jurisdiction. This contradicts the SEC’s position that Ether could be considered a security.
BlackRock CEO Larry Fink stated in a recent interview that listing an Ether ETF could still be possible even if regulators classify it as a security. Bloomberg senior ETF analyst James Seyffart, on the other hand, predicts a denial of the ETF in May, noting that the CFTC has recognized Ether as a commodity since February 2021.
The growth of the Ether futures market is seen as a positive development, as it increases liquidity and attracts hedge funds and large asset managers. However, the recent record high in aggregate Ether futures open interest should not be seen as a solely bullish indicator.
It’s worth mentioning that Binance leads the pack with $4.55 billion in ETH futures market positions, followed by Bybit with $2.4 billion. The open interest in CME Ether futures currently stands at $1.3 billion. Therefore, attributing the recent surge solely to institutional investors would be oversimplifying the situation.
In derivatives markets, the volume of long positions is usually equal to the volume of short positions. However, the demand for leverage can indicate the market’s sentiment. A positive funding rate suggests increased demand for bullish leverage positions, while a negative rate suggests a preference for bearish positions.
Recent data shows a rise in the demand for leveraged long positions in ETH, with the current funding rate at 0.04% or roughly 0.8% on a weekly basis. Rates above 1.2% per week usually indicate excessive optimism, but the current rate suggests that traders are moderately bullish.
To get a more accurate sense of professional traders’ sentiment, it’s important to look at data from the Ether options market. The 25% delta skew provides insights into whether arbitrage desks and market makers are charging more for upward or downward protection. A skew above 7% suggests expectations of a price decline, while a negative skew below -7% indicates excitement in the market.
The Ether option delta skew currently indicates balanced pricing between call and put options, suggesting a neutral market stance. However, comparing it to data from March 21, when the skew showed signs of optimism, suggests that traders are now less optimistic about Ether surpassing the $3,800 mark.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and make their own decisions when it comes to investments and trading.