Bullish ETH/BTC pair revives the Ethereum ‘flippening’ discussion

Bitcoin price is clinging on to $53,000 while Ethereum’s increasing bullish momentum prompted renewed discussions of an ETH flippening.

Bitcoin and the overall cryptocurrency market saw minor losses on April 29 as the market heads into the expiry of $4.2 billion worth of (BTC) options contracts. 

Data from Cointelegraph Markets and TradingView shows that since reaching a high above $56,400 on April 28, the price of Bitcoin has dropped more than 6% back down near the $53,000 support level while Ethereum (ETH) continues to trade above $2,700.

BTC/USDT 4-hour chart. Source: TradingView

Despite the lull in market activity, signs of mainstream cryptocurrency integration continue to emerge on a near-daily basis. Earlier today Coinbase announced that users can now purchase up to $25,000 worth of cryptocurrency per day using their PayPal account.

And it’s not just financial institutions that are integrating blockchain technology to help achieve financial objectives. The government of Ethiopia revealed a partnership with Input Output Hong Kong (IOHK), the research and development arm behind Cardano (ADA). The goal of the new partnership is to us blockchain technology to overhaul its education system.

ETH/BTC starts to climb higher

While Bitcoin continues to struggle below the $55,000 resistance level, the ETH/BTC pairing has started climbing higher in a move that was predicted by multiple analysts, including Real Vision CEO Raoul Pal. The bullish movement in the ETH/BTC pair has also reignited conversations about Ether price evetually flipping BTC.

ETH/BTC 4-hour chart. Source: TradingView

According to Élie Le Rest, partner at digital asset management firm ExoAlpha, Ether has been getting stronger against Bitcoin since the end of March with the upcoming upgrade which includes EIP 1559 being “seen as a strong catalyst of the recent ETH bull-run.”

This increased momentum is a signal for Le Rest that the market may be in a “buy the rumor, sell the news configuration that may drive the price up until EIP 1559 is released in July this year.”

Le Rest said: 

“Overall, this Ethereum upgrade is getting closer to ETH 2.0, with features like shifting from a proof-of-work to a proof-of-stake chain including a burning fee mechanism. Those upcoming features are a great incentive for investors to tag along, contributing to ETH’s strong recovery against BTC, but it’s still very early to put the flippening topic on the table again.”

A few altcoins make gains

The slumping price of Bitcoin weighed down the wider cryptocurrency market on Thursday with a majority of altcoins experiencing minor losses.

Daily cryptocurrency market performance. Source: Coin360

Some notable exceptions to the pullback include Syscoin (SYS), which at one point spiked 45% to $0.50 and the Binance Smart Chain-based Venus lending platform, whose XVS token rallied 30% to $97.90, just a dollar short of its all-time high.

Waves (WAVES), a multi-purpose blockchain platform, also experienced a 20% surge that lifted the token to a new record high at $23.43.

The overall cryptocurrency market cap now stands at $2.035 trillion and Bitcoin’s dominance rate is 48.8%.

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Here’s how multi-leg options allow traders to profit from $2K Ethereum price

Using multi-leg options can give traders a less risky way to invest in Ethereum price as it pushes above $2,000.

This week Ether (ETH) price finally broke through the $2,000 level as aggressive institutional inflow through Grayscale Investments products and declining exchange reserves signaled that buying pressure was increasing.

While many traders are skilled at using perpetual futures and the basic margin investing tools available on most exchanges, they may be unaware of additional instruments that can be used to maximize their gains. One simple way, albeit expensive, is buying Ether call option contracts.

Ether 60-day historical volatility. Source: TradingView

For example, a March 26 call option with a $1,760 strike trades at $340. In the current situation, the holder would only profit if Ether trades above $2,180 in 39 days, a 21% gain from the current $1,800. If Ether remains flat at $1,800, this trader will lose $300. This is certainly not an excellent risk-reward profile.

By using call (buy) options and puts (sell), a trader can create strategies to reduce this cost and improve the potential gains. They can be used in bullish and bearish circumstances and most exchanges offer easily accessible options platforms now.

The suggested bullish strategy consists of selling a $2,240 put to create positive exposure to Ether while simultaneously selling a $2,880 call to reduce gains above that level. These trades were modelled from Ether price at $1,800.

Two out-of-the-money (small odds) positions are needed to protect from the possible price crashes below 20% or Ether gains above 130%. Those additional trades will give the trader peace of mind while also reducing the margin (collateral) requirements.

Profit / Loss estimate. Source: Deribit Position Builder

The above trade consists of selling 1 Ether contract of the March 26 put option with a $2,240 strike while selling another 1 Ether contract of the $2,880 strike. The additional trades also avoid the unexpected scenarios for the same expiry date.

The trader needs to buy 0.73 Ether contracts of the $4,160 call in order to avoid excessive upside losses. Similarly, buying 1.26 Ether contracts of $1,440 puts will protect against more significant negative price moves.

As the estimate above shows, any outcome between $1,780 and $3,885 is positive. For example, a 20% price increase to $2,160 results in a $478 net gain. Meanwhile, this strategy’s maximum loss is $425 if Ether trades at $1,440 or lower on March 26.

On the other hand, this strategy can net a positive $580 or higher gain from $2,240 to $3,100 at expiry. Overall it yields a much better risk-reward from leveraged futures trading, for example. Using 3x leverage would incur a $425 loss as soon as Ether drops 8%.

This multiple options strategy trade provides a better risk-reward for those seeking exposure to Ether’s price increase. Moreover, there is zero upfront funds involved for the strategy, except from the margin or collateral deposit requirements.

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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Record $6.5B futures open interest signals traders are bullish on Ethereum

The open interest on Ethereum futures hit a record $6.5 billion as ETH rallied to $1,750 and traders increased their leverage.

Ether (ETH) price has rallied by 33% over the last five days and data shows that as this occurred some buyers began to use excessive leverage. 

Although this is not necessarily negative, it should be considered a yellow flag as a higher premium on futures contracts for short periods is normal.

ETH/USD 4-hour chart. Source: TradingView

Although Ether’s upward movement has been going for an extended period, it was only in February that Ether finally broke the $1,500 psychological barrier and entered price discovery mode.

To assess whether the market is overly optimistic, there are a few essential derivatives metrics to review. One is the futures premium (also known as basis), and it measures the price gap between futures contract prices and the regular spot market.

The 3-month futures should usually trade with a 6% to 20% annualized premium, which should be interpreted as a lending rate. By postponing settlement, sellers demand a higher price and this creates a price difference.

ETH Mar. 26 futures premium. Source: NYDIG-Digital Assets Data

The above chart shows the Ether futures premium shooting above 5.5%, which is usually unsustainable. Considering there’s less than 49 days to the Mar. 26 expiry this rate is equivalent to a 55% annualized basis.

A sustainable basis above 20% signals excessive leverage from buyers and creating the potential for massive liquidations and market crashes.

A similar movement happened on Jan. 19 as Ether broke $1,400 but failed to sustain such a level. That situation helped trigger the liquidations that followed and Ether plunged 27% over the next two days.

A basis level above 20% is not necessarily a pre-crash alert but it reflects high levels of leverage usage from futures contract buyers. This overconfidence from buyers only poses a greater risk if the market recedes below $1,450. That was the price level when the indicator broke 30% and reached alarming levels.

It is also worth noting that traders sometimes pump up their use of leverage in the midst of a rally but also purchase the underlying asset (Ether) to adjust the risk.

Sellers were not liquidated by the move to $1,750

Those betting on $2,000 Ether should be pleased to know that open interest has been increasing all throughout the recent 33% rally. This situation indicates short-sellers are likely fully hedged, taking benefit of the futures premium, instead of effectively expecting a downside.

ETH futures aggregate open interest in USD terms. Source: Bybt.com

This week the open interest on Ether futures reached a record $6.5 billion, which is a 128% monthly increase.

Professional investors using the strategy described above are essentially doing cash and carry trades which consist of buying the underlying asset and simultaneously selling futures contracts.

These arbitrage positions usually do not present liquidation risks. Therefore, the current surge in open interest during a strong rally is a positive indicator.

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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3 reasons why Ethereum price is still on track to top $2,000

Substantial spot volume, a favorable futures premium, and top traders buying the dip are all signals that Ethereum price should see continuation.

After dropping 27% over three days, Ether (ETH) price finally reached a bottom at $1,040 on Jan. 22. 

The sharp correction liquidated $600 billion worth of future contracts but interestingly, Ether price rebounded to a new all-time high even as Bitcoin price continues to trade in a slight downtrend.

According to Cointelegraph, the increasing TVL and transaction volumes of the decentralized finance sector are behind Ether’s impressive surge.

ETH/USD 4-hour chart. Source: TradingView

To determine whether the recent pump reflects a potential local top, we’ll take a closer look at on-chain flows and derivatives data.

Exchange withdrawals point to whale accumulation

Increasing withdrawals from exchanges can be caused by multiple factors, including staking, yield farming, and buyers sending coins to cold storage. Usually, a steady flow of net deposits indicate a willingness to sell in the short-term. On the other hand, net withdrawals are generally related to periods of whale accumulation.

ETH held in exchange wallets. Source: Cryptoquant.com

As the above chart shows, on Jan. 23, centralized exchanges recently reached their lowest Ether reserve levels since November 2018.

Although there is some discussion whether part of this Ether exodus is an internal transfer between Bitfinex cold wallets, there has been a clear net withdrawal trend over the past month. Despite these ‘rumors’, the data points towards accumulation.

This data also coincides with the DeFi’s total value locked (TVL) reaching a $26 billion all-time high and signals investors chose to take advantage of the lucrative yield opportunities that exist outside of centralized exchanges.

Futures were overbought

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 6% to 20% annualized premium (basis) 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.

On the other hand, a sustainable basis above 20% signals excessive leverage from buyers, creating the potential for massive liquidations and eventual market crashes.

March 2021 ETH futures premium. Source: NYDIG Digital Assets Data

The above chart shows that the premium peaked at 6.5% on Jan. 19, equal to a 38% annualized rate. This level is considered extremely overbought, as traders need an even higher price increase ahead of expiration to profit from it.

Overbought derivatives levels should be considered a yellow flag, although maintaining them for short periods is normal. Traders might momentarily exceed their regular leverage during the rally and later purchase the underlying asset (Ether) to adjust the risk.

One way or another, the market adjusted itself during the Ether price crash, and the futures premium currently stands at a healthy 4.5% level, or 28% annualized.

Spot volume remains strong and traders bought the dip

In addition to monitoring futures contracts, profitable traders also track volume in the spot market. Typically, low volumes indicate a lack of confidence. Therefore significant price increases should be accompanied by robust trading activity.

ETH aggregate spot exchanges volumes. Source: Coinalyze.net

Over the past week, Ether has averaged $6.1 billion in daily volume, and while this figure is far from the $12.3 billion all-time high seen on Jan. 11, it is still 240% higher than December’s. Therefore, the activity supporting the recent $1,477 all-time high is a positive indicator.

Exchange-provided data highlights traders’ long-to-short net positioning. By analyzing every client’s position on the spot, perpetual and futures contracts, one can obtain a clearer view of whether professional traders are leaning bullish or bearish.

With this said, there are occasional discrepancies in the methodologies between different exchanges so viewers should monitor changes instead of absolute figures.

Exchanges top traders ETH long-to-short ratio. Source: Bybt.com

The top traders index at Binance and Huobi have held roughly the same Ether position over the past couple of days. Huobi’s average over the past 30 days has averaged a 0.83 long-to-short ratio while at Binance traders held a 0.94 average. The current reading at 0.85 indicates a slight negative sentiment.

OKEx stands out as the top traders long-to-short ratio peaked at 2.0, strongly favoring longs in the early hours of Jan. 22, but it decreased until Jan. 24 and finally bottomed at 1.05. The strong net selling trend was reverted today as traders bought the dip and the indicator flipped to 1.17 in favor of longs.

One should keep in mind that arbitrage desks and market makers encompass a vast portion of the exchanges’ top traders metric. The unusually high futures premium would incentivize those clients to create short positions in futures contracts while simultaneously buying Ether spot positions.

Considering Ether’s on-chain data indicating whales hoarding, along with the healthy futures contracts premium, the market structure seems reliable.

The fact that top traders at OKEx also bought today’s dip is further indication that the rally should see continuation.

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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4 reasons why Ethereum options traders expect ETH price to reach $880

Ethereum options data show traders anticipate a continued surge to $880 over the next four weeks.

Ether (ETH) price has gained 88% since November, astonishing even the most bullish investors as the top altcoin secured a 2020 high at $750.

Aside from the upcoming CME ETH futures launch scheduled for Feb. 8, the phenomenal growth of the total value locked (TVL) in Decentralized Finance protocols also played a major part.

Total Value Locked, USD. Source: DeFi Pulse

As the above data indicates, investors are even more confident that Eth2 has been a success, despite the real potential of delays and implementation hurdles.

Another possible bullish factor in the background is the recent 2 year low in ETH miner balances. This certainly eases potential sell pressure and opens room for further bullish continuation.

Over the past three months, the open interest on Ether options grew by 150% to a total of $880 million. This incredible build-up occurred as the cryptocurrency broke the $700 resistance, and reached its highest price since May 2018.

Ether options open interest. Source: Crytorank.io

The put-call ratio flipped bullish

By measuring whether more activity is going through call (buy) options or put (sell) options, one can gauge the overall market sentiment. Generally speaking, call options are used for bullish strategies, whereas put options for neutral to bearish ones.

Ether options open interest put/call ratio. Source: Cryptorank.io

Despite the recent price rally, the put/call ratio has gone down considerably. This move indicates that the more bullish call options have been dominating volumes. One should expect precisely the opposite whenever traders lock in profits or prepare for a potential downside.

That’s a striking contrast to the 0.94 level two weeks ago, which indicated that put options were well balanced with the neutral to bullish call options.

Options data shows traders expect another 20% hike to $880

The odds of the current option trades are calculated according to the Black & Scholes model. Deribit exchange presents this information as ‘delta’. In short, these are the percent-based odds for each strike.

Ether Jan. 29 call options delta. Source: Deribit

According to the above data, the $880 strike for Jan. 25 has a 34% chance of occurring, while the most traded $960 strike holds a 25% odd according to the options pricing model.

Take notice that the statistical model tends to be overly conservative, as even the $720 strike holds a mere 59% odd.

The March expiry is also extremely bullish

With 86 days left until March 2021 expiry, the odds of Ether price topping $880 is even more likely.

Ether Sept. 25 call options delta. Source: Deribit

The same $880 strike now has a 49% odd according to the Black & Scholes pricing model, whereas the staggering $1,120 expiry holds 33%.

As shown above, the options for March 2021 are trading a relevant amount of volume and cost $114 apiece. This data is indisputable evidence of traders’ bullish sentiment.

Futures market data reflects bullish sentiment

An even better way to gauge professional investors sentiment toward the market is to analyze the futures markets premium. This is measured by the difference between longer-term future contracts and the current Ether (ETH) spot price.

Mar. 2021 Ether futures premium. Source: Digital Assets Data

The chart above shows that the indicator peaked at 5.8% on Dec. 19 and it reached the same level again on Dec. 28 as Ether price made a multi-year high. A sustained futures premium above 3.5% reflects optimism, although it is far from excessive.

The current 4.3% rate is equal to an 18% annualized premium and is significantly higher than the levels seen in previous months. This shows that despite reaching a swing high at $750 levels, professional traders remain confident in Ether’s future potential.

It might be too soon to determine whether the derivatives market will reduce its optimism, but for the moment, bulls seem to be fully in control.

While there is always the possibility of a correction in Ether price, it is unlikely to be strong enough to cause havoc as the market is not showing any signs of excessive optimism.

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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