Ethereum’s Price Surges, But Are Pro Traders Buying It? Derivatives Data Hints at Skepticism Amidst Powell’s Hawkish Risk

Ethereum (ETH) has recently experienced a notable price surge, capturing the attention of crypto enthusiasts and investors alike. On December 13th, Ether jumped by a solid 6.3%, reaching $1,350. This rally mirrored a previous attempt in November, marking the highest level in 33 days. Exciting, right? But before you jump to conclusions about a sustained bull run, let’s take a closer look at what the professional traders are actually doing – because it might not be what you expect.

Are Pro Traders Really Convinced by Ethereum’s Rally?

While the price charts might look promising at first glance, key derivatives metrics suggest a different story. Despite hitting these recent highs, the gains haven’t been enough to truly ignite confidence among seasoned traders. Why the hesitation? Let’s dive into the factors tempering the enthusiasm.

Binance’s Billion-Dollar Withdrawals: A Sign of Unease?

One potential reason for the cautious sentiment could be the significant withdrawals from Binance. In a 24-hour period, the exchange witnessed nearly a record $1.1 billion in withdrawals. This unusual activity comes as Binance faces scrutiny regarding its proof of reserves and overall financial health, fueled by discussions on crypto Twitter. While Binance CEO Changpeng Zhao dismisses these concerns as misinformation, such large withdrawals can naturally inject uncertainty into the market.

Adding to the complexity, reports emerged about Binance’s USD Coin reserves being temporarily strained due to banking hours. While these issues might be resolved, they contribute to a climate of caution.

The Shadow of FTX and Regulatory Scrutiny

The broader crypto market is still reeling from the FTX collapse, and recent developments aren’t helping. On December 13th, the U.S. Securities and Exchange Commission (SEC) formally charged Sam Bankman-Fried, the former CEO of FTX. These charges followed closely after his arrest in the Bahamas at the request of U.S. authorities. Furthermore, the Commodity Futures Trading Commission (CFTC) also filed a complaint against Bankman-Fried, FTX, and Alameda Research, alleging violations of the Commodity Exchange Act and demanding a jury trial. This ongoing legal drama surrounding FTX casts a long shadow over the crypto space, impacting investor confidence.

Macroeconomic Factors: The Fed’s Next Move and Inflation

Beyond exchange-specific events and FTX fallout, macroeconomic factors are playing a crucial role in shaping market sentiment. The recent Ethereum price increase was largely fueled by the November Consumer Price Index (CPI) data, which came in at 7.1% year-on-year – slightly below expectations. This softer inflation figure raised hopes that the Federal Reserve might slow down its aggressive interest rate hikes.

However, the real test comes on December 14th when the Federal Reserve announces its decision on the next interest rate hike. Economists are anticipating a slower pace of increases, but the market is keenly awaiting Federal Reserve Chair Jerome Powell’s commentary. As crypto trader CryptoAceBTC pointed out, there’s a palpable fear that hawkish statements from Powell could trigger a reversal of Ethereum’s recent gains.

Decoding Derivatives Data: Futures and Options Markets

To understand if this recent ETH surge has genuinely shifted market sentiment, we need to analyze the derivatives markets – specifically futures and options. These markets are often favored by professional traders and offer valuable insights into their positioning.

Ether Futures: Premium or Discount?

Let’s start with Ether futures. Quarterly futures contracts might seem less appealing to retail traders due to the price difference compared to spot markets. However, professional traders prefer them because they are less susceptible to the funding rate fluctuations seen in perpetual futures contracts.

In a healthy market, the two-month futures annualized premium (the difference between futures price and spot price) typically trades between +4% and +8%. This premium reflects the costs and risks associated with holding the asset. Conversely, when futures trade at a discount to spot markets, it signals a lack of confidence among leveraged buyers – a bearish indicator.

As the chart indicates, the Ether futures premium is currently below 0%. This suggests that derivatives traders are still operating in a “fear mode,” indicating weak demand from those using leverage. This doesn’t necessarily mean prices are destined to fall further, but it does highlight a lack of strong bullish conviction among professionals.

Ether Options: Gauging Risk Perception with Delta Skew

Moving on to options markets, we can examine the 25% delta skew to understand if investors are anticipating significant price swings, particularly to the downside.

The 25% delta skew measures the difference in implied volatility between out-of-the-money call options (upside protection) and put options (downside protection). When market makers and arbitrage desks demand a higher premium for downside protection (put options), the skew tends to increase. A high skew acts as a red flag.

In bearish market conditions, options traders become more concerned about price drops, driving the skew indicator above 10%. Conversely, in bullish markets, the skew tends to fall below -10%, suggesting that bearish put options are undervalued as traders are less concerned about downside risk.

Currently, the 25% delta skew for Ether options is not signaling extreme fear, but it’s also not indicative of strong bullishness. It suggests a neutral to slightly cautious stance among options traders.

Key Takeaways: Proceed with Caution

While Ethereum’s recent price surge is encouraging, derivatives market data reveals that professional traders remain unconvinced. Factors like Binance withdrawals, the ongoing FTX saga, and the looming Federal Reserve decision are contributing to this cautious sentiment. The futures premium indicates a lack of strong leveraged buying, and options skew doesn’t point to overwhelming bullishness.

Here’s a quick summary of the key points:

• Derivatives markets are not reflecting strong bullish sentiment: Both futures premium and options skew suggest professional traders are not fully buying into the recent ETH price surge.
• Binance’s withdrawal situation adds uncertainty: Large withdrawals from Binance are a potential concern, even if temporary.
• FTX fallout continues to weigh on the market: The legal actions against Sam Bankman-Fried and FTX maintain a negative backdrop.
• Federal Reserve’s stance is crucial: Jerome Powell’s comments on December 14th could significantly impact ETH’s price trajectory.
• CPI data provided temporary relief: Softer inflation data fueled the recent rally, but the sustainability depends on the Fed’s response.

Actionable Insight:

• Monitor derivatives data closely: Keep an eye on futures premium and options skew for shifts in professional trader sentiment.
• Stay informed about macroeconomic events: Pay attention to Fed announcements and inflation data releases.
• Exercise caution: While the price surge is positive, the underlying market sentiment suggests it might be premature to declare a full-blown bull run. Be prepared for potential volatility and price retracement, especially if Powell adopts a hawkish tone.

In conclusion, while the Ethereum price chart might paint a rosy picture, a deeper dive into derivatives data and the broader market context reveals a more nuanced reality. Professional traders are not yet convinced, and significant uncertainties remain. Therefore, navigating the Ethereum market in the near term requires a balanced approach of optimism and caution, closely monitoring market signals and macroeconomic developments.