Traders pin hopes on Ethereum record highs on Bitcoin ETF final approval

Ethereum's Price Lags Bitcoin 13% in October, But Does It Matter? Ethereum is still outperforming Bitcoin by 274% so far in 2021. However, traders tend to be short-sighted, with some questioning whether the ethereum network can successfully migrate to proof-of-stake (PoS) verification and eventually address the problem of high gas fees.

Prices of Bitcoin and Ethereum (Bitstamp) Source: TradingView

Additionally, growing competition from smart contract networks such as Solana (SOL) and Avalanche (AVAX) has been worrying investors:

A big problem with the "Ethereum is ultra-sound money" statement is that EIP-1559 will only limit the supply of ETH if Ethereum continues to have a lot of transactions. People may get tired of the $80 gas fee and choose one of the many alternatives (SOL, AVAX, etc.).

— dennis in SF // OP_CTV (@pourteaux) October 8, 2021

As Cointelegraph reported, recent speculation about the possible approval of a Bitcoin exchange-traded fund (ETF) has boosted traders' interest in BTC. The U.S. Securities and Exchange Commission (SEC) is expected to announce its decisions on several ETF requests in the coming weeks. However, it is still possible for the regulator to push back those dates.

Professional traders aren't worried about recent price stagnation

To determine whether a professional trader is leaning bearish, one should first analyze the contango - also known as the basis. This metric measures the difference between the price of a futures contract and the regular cash market.

Ethereum’s quarterly futures are the tool of choice for whales and arbitrageurs. These derivatives may appear complicated to retail investors due to their settlement dates and price differences from the spot market, but the most important advantage of futures is the absence of fluctuating funding rates.

Ethereum 3-month futures basis source: Laevitas.ch

The annualized premium on three-month ethereum futures typically ranges from 5% to 15%, in line with stablecoin lending rates. By delaying settlement, sellers demand a higher price, which creates a price differential.

As described above, Ethereum’s failure to breach the $3,600 resistance level did not cause a shift in sentiment among professional traders, as the basis remained at a healthy 13%. This suggests that there is no over-optimism at the moment.

Retail investors have been neutral for the past five weeks

Retail investors tend to opt for perpetual contracts (reverse swaps), which charge a fee every 8 hours to balance leverage needs. To understand whether panic selling has occurred, it is necessary to analyze the funding rate in the futures market.

Ethereum perpetual futures 8-hour funding rate source: Bybt

Funding rates range from 0% to 0.03% in a neutral market. This fee is equivalent to 0.6% per week, suggesting that it is the longs who are paying the fee.

Since September 7, there has not been any real sign of highly leveraged demand from bulls or bears. This balanced picture reflects a lack of appetite among retail traders for leveraged long positions, but at the same time shows little panic selling or excessive panic.

The derivatives market shows that Ethereum investors are not worried that ETH has underperformed BTC in the near future. Also, after a 374% year-to-date rally, the bulls are not overleveraged, which should be a positive.

By leaving some bullish room without compromising the structure of the derivatives market, ethereum traders appear to be positioning themselves for a rally above all-time highs, especially if a bitcoin ETF is approved.

Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.