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The price of ETH is trailing BTC’s recent gains, but data shows that traders believe the altcoin will break through $4,000 in the near future.
In October, the price of Ether (ETH) trailed that of Bitcoin (BTC) by 13%, but is this significant? Until now, the altcoin has outperformed BTC by 274 percent in 2021. However, traders are notoriously short-sighted, and some will doubt whether the Ethereum network can successfully transition to proof-of-stake (PoS) validation and, as a result, resolve the issue of high gas fees.
Moreover, the increasing competition from smart contract networks like Solana (SOL) and Avalanche (AVAX) have been worrying investors:
One big problem with the “ETH is ultra sound money” meme is that EIP-1559 only limits the supply of ETH if Ethereum continues to have lots of transactions. It’s just as possible that people will tire of $80 gas fees and opt for one of numerous alternatives (SOL, AVAX, etc).
— dennis in SF // OP_CTV (@pourteaux) October 8, 2021
According to recent speculation about the approval of a Bitcoin exchange-traded fund (ETF) increased traders’ appetite for BTC. The Securities and Exchange Commission (SEC) of the United States is expected to make a decision on multiple ETF requests in the coming weeks. However, there is still a chance that the regulator will push back these deadlines.
Pro traders are unfazed by the recent price stagnation
To determine whether professional traders are bearish, first examine the futures premium, also known as the basis rate. This indicator measures the price difference between futures contract prices and spot market prices.
Quarterly futures on Ether are the prefered instrument of whales and arbitrage desks. Because of their settlement date and price difference from spot markets, these derivatives may appear complicated to retail traders, but their most significant advantage is the lack of a fluctuating funding rate.
The three-month futures typically trade with a 5% to 15% annualised premium that corresponds to the stablecoin lending rate. By deferring settlement, sellers demand a higher price, resulting in the price difference.
Because the basis rate remains at a healthy 13 percent, Ether’s failure to break the $3,600 resistance has not caused a shift in pro traders’ sentiment, as depicted above. This demonstrates that there is no overabundance of optimism at the moment.
Retail traders have been neutral for the past five weeks
Retail traders tend to opt for perpetual contracts (inverse swaps), where a fee is charged every eight hours to balance the leverage demand. To understand if some panic selling occurred, one must analyze the futures markets funding rate.
In neutral markets, the funding rate typically ranges from 0% to 0.03 percent on the positive side. This fee is equivalent to 0.6 percent per week and indicates that it is paid by longs.
There hasn’t been any real indication of high leverage demand from either bulls or bears since September 7. This balanced situation reflects retail traders’ lack of appetite for leveraged long positions while also demonstrating little panic selling or excessive fear.
According to derivatives markets, Ether investors are unconcerned about the recent underperformance versus Bitcoin. Furthermore, the lack of excessive long leverage following a 274 percent gain year to date should be portrayed positively.
By allowing for some bullishness without jeopardising the derivatives market structure, Ether traders appear to be bracing for a rally above the all-time high, particularly if a Bitcoin ETF is approved.