Ethereum on the Rise: Factors Driving ETH towards $3,000 and Possible Challenges Ahead
Summary:
Ether's (ETH) price has been on a steady rise, attributing not only to the strong inflow into the recently launched Bitcoin ETF in the U.S but also due to factors like impending Ethereum ETF approval and Dencun network upgrade. Despite the optimism, historical trends warn that sustaining prices beyond $3,000 may prove challenging, particularly as volatility relating to the Ethereum spot ETF approval presents significant liquidation risks.
In the past ten days, the price of Ether (ETH) has seen a rising trend, with an appreciable gain of 21.5% as it reaches the threshold of $2,800. This optimistic trajectory in the value of cryptocurrencies is largely linked to the significant infusion of finances into the newly initiated Bitcoin (BTC) exchange-traded fund (ETF) in the United States. Ether, however, has other potential catalysts that could potentially push it beyond the $3,000 mark — a figure that is a reminiscent of a turbulent period in March 2022. Will the push of Ether to the $3,000 mark take a different path this time?
Viewing from a bullish standpoint, Ether could secure its spot as the second cryptocurrency to have its ETF listed on U.S. exchanges. This would set it apart from its rivals such as Solana (SOL) and BNB Chain (BNB) in terms of regulation and accessibility. With exchanges, including Binance and Coinbase, still being embroiled in lawsuits with the U.S. Securities and Exchange Commission (SEC) over security offerings, a U.S. approval for Ethereum ETF would decisively decrease ambiguity for its investors.
Another positive catalyst for Ether comes in the form of the Dencun network upgrade that is set to take place on March 13. Among the benefits of the forthcoming hard fork is a reduction in transaction costs on the Ethereum layer 2, increased block space and decreased gas costs for rollups. These modifications could potentially bolster the use of its decentralized applications (DApps) and increment the deposits in its smart contracts, leading to increased demand for ETH.
Optimists backing Ether have several reasons to think that the $3,000 mark can be hit, but history has proven that sustaining such prices can be more challenging. For instance, in the three weeks leading up to April 3, 2022, ETH gained 42%, moving from $2,520 to $3,580. This surge, however, didn't last long as the price suffered a drastic 46% decline in the subsequent 40 days. Traders are now filled with uncertainty if Ether might face a similar fate this time.
The first aspect to examine is Ether’s future premium, a metric that explains the leverage demand between longs (buyers) and shorts (sellers). Professional traders often select monthly futures contracts as they exclude a variable funding rate, however, these contracts usually trade at a 5% to 10% premium to account for their prolonged settlement period.
The data reveals that the future premium of ETH soared above the 10% neutral line on Feb. 10 and now stands close at 15%. This figure, although not excessive, signifies that bulls demanded extra leverage as ETH surged from $2,300 to its present $2,800 valuation. To contrast, the annualized premium in early April 2022 was 5.5%, which was deemed neutral.
To gain a better understanding of how professional traders are positioning themselves, one ought to examine the options markets using the 25% delta skew as a proxy. If the traders predict a decrease in Ether's price, the skew metric will rise beyond 7%, while periods of bullishness usually have a skew of -7%.
Currently, the delta skew metric is close to the -7% bullish market threshold and has now reached the lowest levels in the past three months. These observations align with the ETH futures data and portray a moderately optimistic climate, which is neither excessive nor balanced between bulls and bears.
Traders who are banking on a price surge based on the probability of the approval of the Ethereum spot ETF may face disappointment, particularly if leveraging. Even with the approval odds from senior Bloomberg ETF analysts standing at 70%, the ultimate deadline for the SEC is May 23. This denotes that the fluctuating price presents enormous liquidation risk even if ETH sails beyond $3,000 ahead of the event. However, Ether derivative metrics currently suggest a radically different scenario compared to April 2022, thus there's no definitive forecast for ETH optimists.
This article should not be used as a source of investment guidance or recommendations. Every investment and trading motion carries a risk factor, and readers ought to perform their own comparative analysis before making any decisions.
Published At
2/16/2024 11:55:00 PM
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