38% Ethereum futures premium signals traders anticipate $2,500 ETH

Now that Ether’s (ETH) price broke the $2,000 level, hitting all-time highs this week, traders became excessively bullish and are expecting more upside in the short-term.

Some analysts believe Visa’s initial USD Coin (USDC) stablecoin transaction settlement on the Ethereum network kicked off the most recent rally. Others attribute the current Ether hike to a “triangle market structure” breakout.

Regardless of the cause behind the recent 25% rally, professional traders seem highly optimistic this time around. This conclusion can be reached by looking at the surging futures’ basis, which has reached its highest level ever.

This movement brings increased risks of cascading liquidations due to excessive buyer leverage, but professional traders seem confident, as shown by the delta skew indicator.

Ether (ETH) price at Coinbase, USD. Source: TradingView

Investors could be anticipating the protocol improvement proposal EIP-1559 set to go live in July, which aims to fix the surging gas fees. The upgrade intends to use flexible block sizes instead of the current fixed model, and it aims for a network utilization below 50%.

To assess whether professional traders are leaning bullish, one should start by analyzing the futures premium (also known as the basis). This indicator measures the price gap between futures contract prices and the regular spot market.

OKEx 3-month ETH futures basis. Source: Skew

The 3-month futures should usually trade with a 10% to 20% annualized premium, comparable to the stablecoin lending rate. By postponing settlement, sellers demand a higher price, causing the price difference.

The basis on Ether futures has matched its all-time high at 38%, indicating that it is costly for the leveraged longs. A basis level above 20% is not necessarily a pre-crash alert, but buyers’ overconfidence might pose a risk if the market recedes below $1,750.

It is worth noting that traders sometimes boost their leverage use during a rally but later purchase the underlying…

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