Open interest on Ether (ETH) futures grew by 250% over the past three months to reach $1.7 billion. This incredible build up occurred as the cryptocurrency broke the $400 resistance to reach its highest levels in two years.
ETH futures open interest in USD terms. Source: Skew
Unfortunately, there is no way to ascertain whether futures contracts are mostly used for protection or are the result of increasing leveraged bets on Ether price reaching $500.
The only reliable information from such a market is the basis, which is the comparison of a futures’ contract price versus the spot price of the asset on the open market.
A positive basis, also known as the ‘premium’, indicates a contango situation, which is expected during healthy markets. This simply shows that sellers are demanding more money to postpone trade settlement.
ETH 1-month futures annualized basis. Source: Skew
Currently, the 1-month futures contracts are trading at a 20% annualized premium, indicating that buyers are betting that Ether’s spot price will rise.
The put-call ratio has flipped neutral
To gauge just how bullish professional traders are one should focus on options markets. The two most used indicators to evaluate bull and bear sentiment are the put/call ratio and skew.
The put/call ratio consists of comparing put options open interest against call options. Calls are mostly used by neutral to bullish strategies and the opposite goes for put options.
ETH options open interest put/call ratio. Source: Skew
Despite signs of strong bullish sentiment in futures markets, the put/call ratio is sitting at a neutral position, with calls and puts options open interest virtually balanced.
That’s a striking contrast to the 0.8 level from three months ago, indicating puts were 20% smaller than neutral and bullish call options.
Skew is also less bullish
To better interpret if the previous market sentiment pollutes the put/call ratio, the current skew level provides a real-time fear and greed indicator based on…