Ether (ETH) Price Eyes $3,000: Can It Overcome the Past?

Last time Ethereum reached $3,000, its price plummeted, but derivative data suggests this time could be a unique occurrence.

Ethereum traders aim for $3K, but historical data raises concerns for ETH price.

Will Ether’s eventual rally to the $3,000 turn out differently this time? Let’s delve into the factors driving its bullish momentum and examine the potential challenges it may face.

Consolidating Vice-Leadership: Ethereum ETF Listing

From a bullish perspective, Ether could consolidate its vice-leadership as the second cryptocurrency to have its spot ETF listed on U.S. exchanges. This would distinguish it from competitors such as Solana (SOL) and BNB Chain (BNB) in terms of access and regulation. Exchanges, including Binance and Coinbase, are still facing lawsuits from the U.S. Securities and Exchange Commission (SEC) regarding security offerings. Therefore, an Ethereum ETF approval in the U.S. would significantly diminish uncertainty for its investors.

Dencun Network Upgrade: Reduced Costs and Increased Demand

Other positive drivers for Ether include the Dencun network upgrade, expected on March 13. This hard fork aims to reduce transaction costs on the Ethereum layer 2. By offering more block space and reducing gas costs for rollups, these changes could potentially boost the usage of its decentralized applications (DApps) and increase deposits in its smart contracts. This, in turn, translates to higher demand for ETH.

Challenges in Sustaining $3,000

Ether bulls have multiple reasons to believe that $3,000 is within arm’s reach, but history shows that sustaining such a price level is much harder. For instance, three weeks prior to April 3, 2022, ETH gained 42%, rising from $2,520 to $3,580. However, the rally proved unsustainable as its price nosedived by 46% in the following 40 days. Traders now question whether Ether could face a similar outcome this time around.

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Ether price index in April 2022, USD. Source: TradingView

Analyzing Ether’s Futures Premium and Options Markets

To gain deeper insights, let’s analyze two important metrics related to Ether: futures premium and options markets.

Ether’s Futures Premium – Demand for Leverage

The futures premium indicates the leverage demand between longs (buyers) and shorts (sellers). Data reveals that the ETH futures premium soared above the 10% neutral threshold on Feb. 10 and currently hovers near 15%. Although not deemed excessive, this level indicates that bulls demanded additional leverage as ETH moved from $2,300 to the current $2,800 level. In contrast, the annualized premium (basis rate) in early April 2022 stood at 5.5%, which is considered neutral.

Ether 2-month futures annualized premium. Source: Laevitas.ch

Options Markets – Professional Trader Positioning

The 25% delta skew in the options markets serves as a proxy to gauge professional traders’ positioning. If traders expect a drop in Ether’s price, the skew metric will rise above 7%, while periods of excitement typically have a -7% skew. The delta skew metric entered the -7% threshold for bullish markets on Feb. 9 and is presently near the lowest levels in three months. These findings align with ETH futures data and paint a picture of a moderate degree of optimism, which is not excessive but also unbalanced between bulls and bears.

Ether 2-month options 25% delta skew. Source: Laevitas.ch

Additional Concerns and Risks

Traders betting on a price increase based on the odds of the Ethereum spot ETF approval could face disappointment, especially if they use leverage. Even if the approval odds from senior Bloomberg ETF analysts stand at 70%, the final deadline for the SEC is May 23, meaning price volatility presents an enormous risk of liquidation even if ETH blasts past $3,000 ahead of the event. Still, Ether derivative metrics point to an entirely different scenario versus April 2022, so nothing is set in stone for ETH bulls.

Q&A Corner

Q: What are the potential benefits of an Ethereum ETF approval in the U.S.?

A: An Ethereum ETF approval would provide increased access and regulatory clarity for investors, distinguishing Ether from its competitors. This could lead to greater confidence and stability in the market.

Q: What is the significance of the Dencun network upgrade for Ether?

A: The Dencun network upgrade aims to reduce transaction costs and improve scalability on the Ethereum layer 2. This could increase the usage of decentralized applications and smart contracts, driving higher demand for Ether.

Q: How can traders gauge market sentiment in the futures and options markets?

A: The futures premium indicates the leverage demand between longs and shorts, while the options market’s 25% delta skew serves as a proxy for professional traders’ positioning. These metrics provide valuable insights into market sentiment.

Conclusion: A Test for Ether’s Rally to $3,000

As Ether eyes the $3,000 level, it faces the challenge of sustaining this price level, as demonstrated by past volatility. However, factors such as the potential Ethereum ETF approval and the upcoming Dencun network upgrade provide reasons for bullish optimism. It’s important to evaluate metrics like futures premium and options market sentiment to gain a comprehensive understanding of the situation. While risks and uncertainties remain, Ether bulls are hopeful for a different outcome this time.

References: 1. Solana’s SOL Dips 100, Slips Back in BNB Crypto Ranking 2. Dencun Network Upgrade 3. Facing Lawsuits 4. Approval Odds 5. Uniswap v4 to Launch in Q3 following Ethereum’s Dencun Upgrade

Now, over to you, dear readers! What are your thoughts on Ether’s potential rally to $3,000? Do you believe it will overcome past challenges? Share your opinions and join the conversation! 😄💡

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