The Ethereum upgrade will, in theory, represent more scalability and security. This would introduce several protocol enhancements, including financial changes that will affect regular users. Therefore, in this article we seek to study the positioning of ETH traders prior to the launch of Ethereum 2.0.
With the update expected to go live soon, speculators may have positioned themselves to take advantage of this event. Below, we examine several market indicators that could reveal traders’ sentiment around Ethereum 2.0.
Indicators of the positioning of traders before the launch of Ethereum 2.0
The first indicator that we can review is the open interest in Ethereum futures on the major exchanges. For example, Ethereum futures open interest on Binance has risen sharply since early 2020. Particularly since the second half of the year, ETH open interest increased tremendously, expanding from less than $ 60 million to $ 200 million in its peak.
In other words, there was an expansion of more than three times the starting point. This coincides with a massive ETH rally in which prices peaked at $ 480 in less than a month. The rise in open interest in the second half of 2020 may suggest that traders have made long-term directional bets on Ethereum.
Rising ETH Futures Base Indicates Traders’ Optimism
Another important indicator is the increase in the futures base. This indicator signals the expectations of traders, as the basis represents the difference between the spot and futures prices of the underlying asset.
In bull markets, futures prices trade higher than spot markets. As such, the futures basis tends to be positive. In contrast, in bear markets, futures prices are often traded at a discount in spot markets. Therefore, the futures basis would turn negative.
ETH is still holding strong, despite what happened with the DeFi crash, and the futures base has turned positive in recent weeks. This suggests that investors are more bullish on Ethereum in the short term and that the proposed update could be a critical catalyst for Ethereum resilience.
The chart above shows how the ETH futures base has remained mostly positive over the past 30 days, with occasional declines, especially in mid-September.
More details on open interest in future Ethereum options
Here we examine the distribution of open interest by maturity dates. We note that options expiring in December have the highest open interest with 481,500 open contracts. Meanwhile, open interest due March 21 is 199,800 contracts, according to Skew.
The concentration of activity in the December and March contracts suggests that traders anticipate significant volatility in these periods and may be preparing for ETH 2.0.
Finally, we examine the open interest of ETH options by strike price, showing the accumulation of positions at different prices.
We can see accumulated positions around $ 600 and up and around $ 200 and under. This finding suggests that market participants are unsure of Ethereum’s future direction. The group at both ends may suggest that traders are positioned for volatility-driven trading, where a price breakout beyond these thresholds could trigger a big move.
Looking at the growing demand for ETH futures and options, it seems to suggest that traders remain bullish on Ethereum. They especially have a concentrated activity around Ethereum 2.0’s planned release date. Supported by other fundamentals, such as the fast-growing DeFi sector, demand for ETH looks compelling.
The upcoming Ethereum 2.0 update and the rapid growth of the DeFi space have proven to be important variables driving bullish sentiment. With potentially more use cases, the narrative appears to be fundamentally strong.