Ethereum EIP-1559 upgrade is imminent, but derivative indicators show that traders are not optimistic

Derivatives data shows that traders are not as bullish on Ethereum as Bitcoin. Although altcoins have gained nearly 200% in the first half of 2021 compared to Bitcoin's 22% gain, traders appear to be more affected by Ethereum's recent poor performance.

Institutional flows also influenced the decline in optimism in the Ethereum derivatives market, as ETH investment vehicles suffered record outflows over the past week, while Bitcoin flows began to stabilize. According to CoinShares data, Ethereum fund outflows reached $50 million last week, a record high.

Ethereum (orange) and Bitcoin (blue) prices Source: TradingView

It is worth noting that in June, Ethereum performed 16% worse than Bitcoin in June. It is reported that the London hard fork is scheduled to take place in July, and its core proposal is called EIP-1559, which will limit Ethereum's gas fees. Therefore, when the network migrates away from proof of work (PoW), the price trend may be related to dissatisfied miners.

As such, Ethereum investors have reason to be concerned, as uncertainty abounds. They believe that perhaps miners supporting competing smart contract chains or other unexpected events could further negatively impact Ethereum prices.

Whatever the rationale for the current price action, derivatives indicators now suggest that traders are less confident in Ethereum compared to Bitcoin.

Ethereum December Futures Premium Shows Weakness

In a healthy market, quarterly futures should trade at a premium to regular spot trading. In addition to the exchange rate risk, sellers "lock up" funds by deferred settlement. A 4% to 8% premium in the December contract should be enough to compensate for these effects.

Similar effects occur in almost every derivatives market, although cryptocurrencies tend to have higher risk and higher premiums. However, when futures prices fall below this range, it indicates short-term bearish sentiment.

OKEx BTC (blue) and ETH (orange) December futures premium Source: TradingView

The above chart shows that the Bitcoin December futures premium has recovered to 3.5%, while Ethereum contracts have failed to follow. While both assets are showing neutral to bearish indicators, there is evidence that altcoin investors are less optimistic about a short-term recovery.

Another drop would hurt altcoins even more

Another argument that could have a negative impact on Ethereum’s premium is the impact of a possible 30% negative performance of Bitcoin. Filbfilb, an independent market analyst and co-founder of the Decentrader trading suite, said that a 30% drop in Bitcoin could prompt altcoins to fall twice as much.

Clem Chambers, CEO of financial analysis website ADVFN, also predicted another possible drop that would repeat the crypto winter period of late 2018. Chambers claimed that Bitcoin could capitulate and fall back to $20,000.

While overall market sentiment is neutral to bearish, it seems prudent to predict tougher times ahead for Ethereum, including the uncertainty surrounding its transition to Proof-of-Stake (POS).

Original article: https://cointelegraph.com/news/here-s-why-pro-traders-expect-further-downside-from-ethereum-price?

By MARCEL PECHMAN