Traders say the ETH futures premium falling to a 1-year low is a buy signal. Are they right?
Ether
ETH
$1,844
price fell 9.3% between March 26 and March 28, testing the $1,860 level for the first time in two weeks. This correction led to over $114 million in liquidations of leveraged ETH futures and caused the premium relative to the regular spot market to drop to its lowest level in over a year.
Some traders have said that the rock-bottom ETH futures premium is a bottom signal, but let’s dig deeper into the data to see if this perspective makes any sense.
Ether’s monthly futures typically trade above the regular spot price as sellers demand compensation for the longer settlement period. A 5% to 10% annualized premium usually indicates neutral markets, reflecting the cost of opportunity and the exchanges’ risk. However, ETH futures dropped below this threshold on March 8, following a 24% price correction in the prior two weeks.
The current 2% ETH futures annualized premium suggests a lack of demand for leveraged longs (buys), but this measure is highly influenced by recent price movements.
For example, on Oct. 10, 2024, the ETH futures premium dropped to 2.6% after a 14% price correction in two weeks, but the indicator rose to 7% as ETH regained most of its losses. Essentially, the futures premium rarely signals changes in the spot price trend.
ETH whales are afraid Ether price will fall further
To determine if whales have lost interest in Ether, it is crucial to observe how the market is pricing put (sell) options compared to call (buy) options. When traders anticipate a downtrend, the 25% delta skew metric rises above 6%, indicating a higher demand for hedging strategies. In contrast, periods of bullishness usually push the skew below -6%.
Currently, at 7%, the ETH options’ 25% delta skew suggests a lack of conviction among professional traders, raising the likelihood of further bearish momentum.
From a derivatives market perspective, there is little indication that the recent ETH price correction has bottomed out. Essentially, investors are not confident that the $1,800 support will hold.
Some analysts argue that the sharp decline in Ethereum network activity is the primary reason for the reduced appeal of ETH, while others suggest that the shift toward layer-2 scalability has significantly diminished the potential of base chain fees. Given the need to compensate network validators, the lack of capital inflow requires more ETH issuance, which negatively affects net returns from native staking.
The Ethereum network faces steep competition
Attempting to pinpoint the reasons behind sellers’ motivations is futile, especially when considering Ethereum’s competition, which has expanded from blockchains like BNB Chain and Solana to networks tailored for specific challenges. Examples include Hyperliquid,
focused on synthetic assets and perpetual trading, and Berachain, which is apparently better suited for staked assets in cross-liquidity pools.
The success of certain decentralized applications (DApps) could serve as the final blow to Ether. For example, Ethena, the synthetic dollar protocol on Ethereum, is transitioning to its own layer-1 blockchain. The project, currently holding $5.3 billion in total value locked (TVL), raised $100 million in December 2024 to support this shift.
However, it may be premature to claim that ETH price will continue to fall, as a major protocol update is only weeks away. Investors should carefully track the practical benefits of Ethereum’s Pectra upgrade,
particularly in terms of base layer fees and overall usability for the average user. Until then, the chances of ETH outperforming the broader altcoin market remain slim.