The Surprising Rally of Ether: Analyzing Derivatives and Retail Indicators

The Surprising Rally of Ether: Analyzing Derivatives and Retail Indicators

Ether (ETH) experienced an unexpected surge on November 9th, with an 8% rally that propelled it past the $2,000 barrier. This significant price level is the highest Ether has reached in the past six months, grabbing the attention of cryptocurrency enthusiasts and investors alike. The catalyst behind this rally was the news of BlackRock registering the iShares Ethereum Trust in Delaware, which sparked excitement and fuelled optimistic expectations within the community. With BlackRock being a renowned asset manager with $9 trillion under its management, the prospect of an Ether spot ETF filing added further anticipation to the market. This surge in price resulted in $48 million worth of liquidations in ETH short futures and initially came to light through a social network post by @SummersThings. Bloomberg ETF analysts later confirmed the news, adding credibility to the speculation surrounding BlackRock’s interest in the Ethereum ecosystem. However, it is worth noting that no official statement has been released by BlackRock, leaving investors in a somewhat precarious position regarding the future success of Ether.

To gain further insight into the market sentiment following the surprising rally, it is critical to analyze the ETH derivatives metrics and understand how professional traders are positioned. Typically, Ether monthly futures trade at a 5%-10% annualized premium compared to spot markets, indicating that sellers demand additional money to delay settlement. On November 9th, the Ether futures premium jumped to 9.5%, marking its highest level in over a year. Moreover, it broke above the 5% neutral threshold on October 31st, effectively ending a two-month bearish period characterized by low demand for leveraged long positions. This shift in sentiment suggests that traders have regained confidence in Ethereum’s prospects and are willing to bet on its upward trajectory.

When assessing whether the break above $2,000 has led to excessive optimism, it is essential to examine the Ether options markets. In periods where traders anticipate a drop in Bitcoin’s price, the delta 25% skew tends to rise above 7%. Conversely, moments of excitement and anticipation typically witness a dip below negative 7%. On October 31st, the Ether options 25% delta skew shifted from neutral to bullish. Currently, the skew stands at -13%, which is the lowest it has been in over 12 months. However, this level of optimism can hardly be described as excessive. It has been the norm for the past nine days, suggesting that Ether investors were accurately anticipating the bullish momentum. Therefore, considering the shifts in derivatives metrics and options markets, it becomes evident that Ether bulls have gained the upper hand regardless of the ongoing spot ETF narrative.

Despite the optimism and surging demand for Ether witnessed in the derivatives market, there are some inconsistencies when analyzing the broader cryptocurrency market structure, particularly the retail indicators. For instance, Google searches for “Buy Ethereum,” “Buy ETH,” and “Buy Bitcoin” have remained stagnant over the past week. While it is true that retail traders tend to lag behind the major price movements, typically entering the cycle a few days or weeks after significant milestones have been achieved, this lack of increasing interest raises questions regarding the sustainability of Ether’s rally.

Further contradicting the surge in optimism is the declining demand for cryptocurrencies among Chinese retail traders. One method to gauge Chinese crypto retail trader activity is by examining the stablecoin premium, which measures the difference between China-based peer-to-peer USD Tether (USDT) trades and the United States dollar. In periods of excessive buying demand, the stablecoin premium tends to rise above fair value at 100%. Conversely, during bearish markets, Tether’s market offer gets flooded, resulting in a 2% or higher discount. Presently, the Tether premium on OKX stands at 100.9%, indicating a balanced demand from retail investors. This level contrasts with the 102% premium observed on October 13th, before the crypto total market capitalization jumped 30.6% until November 9th. These findings suggest that Chinese investors are yet to exhibit excessive demand for fiat-to-crypto conversion using stablecoins.

In essence, the surprising rally of Ether above $2,000 appears to have been largely driven by derivatives markets and the speculation surrounding a potential spot ETF approval from BlackRock. While the lack of retail demand may not necessarily indicate an impending correction, it casts some doubt on the sustainability of this rally. The hype surrounding BlackRock’s Ethereum Trust registry, combined with the presence of excessive leverage longs in ETH derivatives, raises concerns regarding the future of Ether’s price. As the market continues to navigate through this period of uncertainty, all eyes will be on the $2,000 support level as it faces the test of time and market forces.


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