Ethereum Booms in Anticipation of CME’s ETH Futures Launch

Ethereum Booms in Anticipation of CME’s ETH Futures Launch

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Key Takeaways CME Group is scheduled to introduce Ether futures to its wide range of institutional traders.

Grayscale reportedly purchased over $76 million worth of ETH in anticipation of the upcoming launch.

Ethereum price continues to gain ground, heading to $2,000.

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Ethereum is going through an impressive bull rally fueled by mounting buy orders from retail and institutional investors.

ETH Futures on CME Incoming

Interest in Ethereum mounts as the world’s largest financial derivatives exchange, CME Group, is scheduled to launch ETH futures on Feb. 8.

The new cash-settled contracts will offer institutional investors exposure to the digital asset on a 50:1 ratio, based on CME’s CF Ether-Dollar Reference Rate. According to the official announcement, the derivative product will be open to trade between 18:00 to 17:00 ET from Sunday to Friday.

Given the importance of the event, Grayscale is preparing for a spike in volatility.

The cryptocurrency asset management firm reopened its Ethereum Trust to accredited investors and closed a deal to buy more than $76 million worth of ETH. Grayscale now holds more than 3 million Ether, which is worth roughly $4.60 billion.

The significant spike in buying pressure appears to have had an important impact on Ethereum’s price, pushing it to new all-time highs.

Ethereum Targets $2,000

Even though Ether was able to rise to a record high of $1,767 on Feb. 5, its uptrend seems far from over.

The second-largest cryptocurrency by market capitalization recently broke out of an ascending triangle where it had been contained over the past three weeks. Based on the height of the triangle’s y-axis, Ethereum could surge another 13% to hit a target of nearly $2,000.

IntoTheBlock’s In/Out of the Money Around Price (IOMAP) model suggests that the bullish outlook will prevail as long as Ethereum continues to trade above the $1,560-$1,630 demand barrier.

Failing to do so could trigger a spike in selling pressure as more than 200,000 addresses will be forced to sell their holdings to avoid incurring significant losses.

If a “buy the rumor, sell the news” phenomenon was to occur, a sell-off may push Ethereum to look for support around the ascending triangle’s x-axis at $1,440.

Disclosure: At the time of writing, this author owned Bitcoin and Ethereum.

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Record $6.5B futures open interest signals traders are bullish on Ethereum

Ether (ETH) price has rallied by 33% over the last five days and data shows that as this occurred some buyers began to use excessive leverage.

Although this is not necessarily negative, it should be considered a yellow flag as a higher premium on futures contracts for short periods is normal.

ETH/USD 4-hour chart. Source: TradingView

Although Ether’s upward movement has been going for an extended period, it was only in February that Ether finally broke the $1,500 psychological barrier and entered price discovery mode.

To assess whether the market is overly optimistic, there are a few essential derivatives metrics to review. One is the futures premium (also known as basis), and it measures the price gap between futures contract prices and the regular spot market.

The 3-month futures should usually trade with a 6% to 20% annualized premium, which should be interpreted as a lending rate. By postponing settlement, sellers demand a higher price and this creates a price difference.

ETH Mar. 26 futures premium. Source: NYDIG-Digital Assets Data

The above chart shows the Ether futures premium shooting above 5.5%, which is usually unsustainable. Considering there’s less than 49 days to the Mar. 26 expiry this rate is equivalent to a 55% annualized basis.

A sustainable basis above 20% signals excessive leverage from buyers and creating the potential for massive liquidations and market crashes.

A similar movement happened on Jan. 19 as Ether broke $1,400 but failed to sustain such a level. That situation helped trigger the liquidations that followed and Ether plunged 27% over the next two days.

A basis level above 20% is not necessarily a pre-crash alert but it reflects high levels of leverage usage from futures contract buyers. This overconfidence from buyers only poses a greater risk if the market recedes below $1,450. That was the price level when the indicator broke 30% and reached alarming levels.

It is also worth noting that traders sometimes pump up their use of leverage in the midst of a rally but also purchase the underlying asset (Ether) to adjust the risk.

Sellers were not liquidated by the move to $1,750

Those betting on $2,000 Ether should be pleased to know that open interest has been increasing all throughout the recent 33% rally. This situation indicates short-sellers are likely fully hedged, taking benefit of the futures premium, instead of effectively expecting a downside.

ETH futures aggregate open interest in USD terms. Source: Bybt.com

This week the open interest on Ether futures reached a record $6.5 billion, which is a 128% monthly increase.

Professional investors using the strategy described above are essentially doing cash and carry trades which consist of buying the underlying asset and simultaneously selling futures contracts.

These arbitrage positions usually do not present liquidation risks. Therefore, the current surge in open interest during a strong rally is a positive indicator.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Ether Tops $1.7K, Setting New Record as CME Futures Launch Nears

Ether’s bull run continues with prices topping the $1,700 mark to set new all-time highs.

At the current price of $1,717, the native token of Ethereum’s blockchain is up 5% on a 24-hour basis, according to CoinDesk 20 data. The cryptocurrency has gained 30% so far this week.

Trader and analyst Alex Kruger foresees a continued rally toward $1,920 ahead of the launch of ether futures on the Chicago Mercantile Exchange on Feb. 8.

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Ether recent rally looks similar to bitcoin’s staggering rise from nearly $6,200 to $19,783 seen in weeks leading up to the CME futures launch on Dec. 17, 2017. The bull market ended following the futures launch and prices fell as low as $3,200 by December 2018.