Long ETH demand increases ahead of Shapella hard fork

In the past 12 days, the price of ETH has fallen within a narrow range. Surprisingly, even the news of Binance and Changpeng Zhao (CZ) being sued by the US Commodity Futures Trading Commission (CFTC) was not enough to break the support.


ETH 12-hour price chart | Source: TradingView

The lawsuit, filed on March 27, alleges that Binance offered derivatives trading services to U.S. customers without first obtaining a derivatives license. Additionally, the U.S. Securities and Exchange Commission (SEC) issued a notice to Coinbase on March 22 to Wells.

Binance holds 35% of ETH futures open interest (OI) even though traders see no reason to reduce their ETH positions due to increased regulatory risk. Therefore, if traders are suddenly forced to liquidate their positions, or if liquidity suddenly drops after US entities are effectively banned from Binance markets, traders should expect significant repercussions, including on the ETH derivatives market.

Many expect the market to recover after derivatives exchange BitMEX lost its long-term market share advantage after it shut down for 30 minutes in March 2020 as bitcoin crashed. However, the outcome of the regulator’s lawsuit against Binance cannot be predicted, so it would be naive to assume there is a 0% chance of service disruption — even if it means customers can close positions and withdraw assets.

Instead of just looking at the ETH price, keep an eye on ETH derivatives to see how professional traders are reacting.

ETH derivatives show increased demand from bulls

In a healthy market, the 2-month contango should trade between 5% and 10% per annum to cover the costs and risks involved. However, when contracts trade at a discount to traditional spot markets, it shows a lack of confidence among traders and is considered a bearish indicator.


2-month ETH Futures Annual Spread | Source: Laevitas

On March 29, futures derivatives traders turned more bullish as the indicator turned to 4%. Futures spreads hit a 4-week high, but remained below the 5% neutral threshold. Those traders even think that the market structure will stabilize.

However, increased demand for leveraged longs (longs) does not necessarily translate into expectations of positive price action. Therefore, traders should analyze the ETH options market to understand how whales and market makers are pricing in the speed of future price movements.

Options traders aren’t worried about regulators’ actions

A delta bias of 25% indicates when market makers and arbitrageurs charge too much to protect bullish or bearish momentum.

During bear markets, options traders offer higher chances of a price crash, pushing the bias gauge above 8%. Bulls, on the other hand, tend to push the Deviation Index below -8%, which means there is less demand for put options.


25% delta deviation for 60-day ETH options | Source: Laevitas

The delta bias indicator has remained neutral since March 22, showing similar valuations between calls and puts. However, with the price of ETH near a seven-month high ($1,800), many expected protective puts to trade at a spread — which was incorrect.

As regulatory pressure mounts on Coinbase and Binance, it’s clear that the derivatives market is sending a signal of confidence. ETH’s bullish momentum can also be attributed to the Shapella hard fork confirmed on April 12. Validators will be able to withdraw funds from the beacon chain after the Ethereum Improvement Proposal EIP-4895 goes live.

In short, the options and futures markets show that professional traders are not worried about regulatory action against Binance and Coinbase. They believe that the ascending and descending channel pattern has a solid foundation.


As reported by Cointelegraph

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