Investor Optimism Soars for Ether amid Dip and Anticipation of US Bitcoin ETF Approval
Summary:
Ether (ETH) value has dipped 14.7% from its high, but investor sentiment remains very positive, as evidenced by two derivatives metrics. The optimism could be tied to anticipation of a spot Bitcoin exchange-traded fund approval in the US or Ethereum's planned Dencun upgrade, set to improve data availability and reduce transaction costs. Despite high costs and certain disruptions, Ethereum continues to enhance its offerings, which may be buoying market sentiment. Notably, Ethereum's competitors face difficulties in storing full transaction histories, driving independent layer-1 projects toward integrating with Ethereum's ecosystem.
The value of Ether (ETH) has dipped by 14.7% since reaching a high of $2,120 on April 16, 2023. Despite this, according to two derivatives metrics, investor sentiment hasn't been this positive in well over a year. This disparity invites scrutiny into whether this newfound optimism stems from Bitcoin's (BTC) price surge above $34,000 on Oct. 24.
The rise in investor interest in ETH derivatives may be rooted in the general market anticipation surrounding the potential sanctioning of a spot Bitcoin exchange-traded fund (ETF) in the United States. Bloomberg analysts suggest that the underway modifications to the spot Bitcoin ETF proposals are positive indicators for eventual approvals—a shift that could push the entire cryptocurrency market to higher price terrains.
U.S. SEC Chair Gery Gensler's 2019 remarks revealed his stance. He criticised the SEC's approach back then as "inconsistent," noting that several spot Bitcoin ETF applications had been refused even though futures-based ETF products that did not include physical Bitcoin have been in operation since December 2017.
The upcoming Dencun upgrade—scheduled for the first half of 2024—may lay the groundwork for the boosted positivity among Ethereum investors using derivatives. The update is designed to improve data availability for layer-2 rollups, leading to lower transaction charges and priming the network for the future introduction of sharding (parallel processing) as part of the "Surge" roadmap.
Vitalik Buterin, Ethereum's co-founder, emphasized in his Oct. 31 commentary, that autonomous layer-1 projects were progressively transitioning and potentially merging as Ethereum ecosystem layer-2 options. However, he conceded that the current fees attached to rollup transactions were too high for most users, notably for those engaged in non-financial applications.
Ethereum competitors are grappling with difficulties as software developers understand the costs attached to storing a network's full transaction history. SnowTrace, a preferred blockchain explorer tool for Avalanche (AVAX), dropped its services due to elevated costs. Phillip Liu Jr., Ava Labs' head of strategy and operations, underscored the challenges users encounter in validating and storing data themselves on single-layer chains.
On October 18, the Theta Network experienced a "edge case bug" after a node upgrade, pausing the production of blocks on the primary chain for several hours. Layer-1 blockchain Aptos Network (APT) endured a five-hour breakdown on October 19, leading to a suspension in deposits and withdrawals at exchanges.
Although Ethereum's network cannot presently offer a remedy to high fees and traffic congestion, it has an 8-year history of consistent enhancements and progress towards these objectives with minimal disruptions.
Scrutinizing bullish sentiment in ETH derivatives markets is vital when you consider the essential elements surrounding Ethereum’s network, even as ETH's value has diminished 14.7% from its $2,120 peak in April. The gap between two-month contracts and the spot price—the Ether futures premium—has hit a year-high.
Data illustrating increasing demand for leveraged ETH long positions confirms the uptick in investor sentiment from 1% on Oct. 23 to 7.4% on Oct. 30, surpassing the neutral-to-bullish benchmark of 5%. This follows ETH's price rally of 15.7% in two weeks.
The 25% delta skew in Ether options offers an additional dimension of the investor sentiment. When forecasts for an Ether price drop emerge, the skew metric rises above 7%. On the other hand, ecstatic market phases typically show a negative 7% skew.
On Oct. 27, the Ether options 25% delta skew fell to a 12-month low of -16%. Concurrently, protective put (sell) options were trading at a discount, suggesting an overabundance of optimism. The current 8% discount for put options marks a noteworthy pivot from the 7% or higher positive skew seen until Oct. 18.
In conclusion, the reasons for the bullish sentiment among Ether investors in derivatives markets are not entirely clear. Traders may anticipate approval for Ether spot ETF instruments following Bitcoin's potential acceptance, or they might be placing their bets on planned upgrades aiming to decrease transaction fees and eliminate the competitive edges of other blockchain networks like Solana (SOL) and Tron (TRX).
Please note: This article does not constitute financial advice or suggestions. Every investment and trading decision carries a risk, and it's crucial for readers to conduct their independent research before making a choice.
Published At
11/1/2023 8:30:00 PM
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