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Support CenterNewsEther Bulls Call for $5K ETH Based on Futures and Options Metrics
Ether Bulls Call for $5K ETH Based on Futures and Options Metrics
2021/11/02 14:33:15

Ether bulls have been calling for $5,000 ETH for years, even among many U.S states that have been cracking down on crypto lending and New York-based decentralized prediction market Polymarket came under investigation from the CFTC.  However, derivatives data still suggests that the price is finally realistic for $5,000 in the short term.

Ether (ETH) pundits have been shouting that the $5,000 price has been 'programmed,' since 2018, and some go even further by calling for $20,000 over the long term. A portion of these bullish calls are based on ETH 2.0 staking and the reduced inflation resulting from EIP-1559.

The $20,000 estimate is equivalent to a $2.36 trillion market capitalization, and even if it is feasible, it still seems excessively optimistic for now. Ether entered an ascending channel on Sep. 20, which points to $5,000 becoming a support level by late November.

Adverse regulatory winds coming from the United States lawmakers could be driving investors away from cryptocurrencies. Many U.S. states, including Kentucky, Texas, Alabama, Vermont, New Jersey and most recently, New York, have been cracking down on crypto lending.

Furthermore, in October, New York-based decentralized prediction market Polymarket came under investigation from the United States Commodity Futures Trading Commission (CFTC). According to a Bloomberg report on Oct. 23, the agency is evaluating whether the decentralized finance (DeFi) application allows its customers to trade binary options and swaps without the necessary regulator approval.

On the other hand, pro traders believe ETH price will move higher. To confirm investors' confidence in the $5,000 prophecy coming true, one should monitor the monthly contract's premium, known as "basis." Unlike the perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges.

By measuring the expense gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market. Whenever there's excessive buyers' optimism, the three-month futures contract will trade at a 15% or higher annualized premium (basis).

Notice how not even the 9.5% correction on ETH price on Oct. 27 from $4,300 to $3,900 was enough to break those traders' spirits. Currently, the basis rate stands at 17%, which signals moderate bullishness.

Also, Ether made an all-time high at $4,460 on Oct. 29 and to determine how optimistic traders are, we have to look at the 25% delta skew. This indicator provides a reliable "fear and greed" analysis by comparing similar call (buy) and put (sell) options side by side. 

Both derivatives indicators sit on the edge of a neutral-to-bullish zone, which should be interpreted as highly positive as it leaves room for buyers' leverage using derivatives instruments. According to futures and options metrics, perma-bulls calling for $5,000 are likely to be correct in the short term.

(Article Courtesy of Cointelegraph)

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