The price of Ether (ETH) is up 58% so far this year, but it has far outpaced the market leader, Bitcoin (BTC). In fact, the ETH/BTC price ratio has fallen to 0.063, its lowest level in 9 months.
Analysts believe that most of the move can be attributed to the upcoming Shapella fork of the Ethereum network, which is scheduled for April 12 at 10:27 p.m. UTC.
The Ethereum network upgrade will allow those interested to unlock their Ether rewards or stop gambling altogether. By April 11, more than 170,000 ETH withdrawals had been requested, according to analytics firm Glassnode. However, the total staked on the Beacon Chain exceeds 18.1 million ETH, which has traders fearful until more information is available on potential ETH selling pressure.
Is the price impact of the Shapella fork already included in the price?
The unlocking of the bet was widely known and expected, so traders might have anticipated the move. Some analysts have gone so far as to call the hard fork a “buy the news” event.
Literally everyone: “Ethereum Shanghai is a news buying event because everyone thinks it is a news selling event” pic.twitter.com/TpyL1TDnPj
— HORSE (@CanteringClark) April 9, 2023
Using a meme, trader @CanteringClark is probably expressing his dissatisfaction with the theory, but to invalidate the hypothesis, one must investigate possible reasons for ETH’s underperformance other than the long-awaited hard fork.
For starters, the Ethereum network’s average transaction fee has been above $5 for the past five weeks and the Shapella hard fork doesn’t address the issue, despite minor improvements. This alone reduces the chances of a bullish breakout after the upgrade, as most decentralized applications (Dapps) and projects will still prefer second layer and competing networks.
Additionally, volume on Ethereum-based decentralized exchanges (DEXs) is down 84% from a weekly high of $38.2 billion on March 5. data for the week ending April 2 was $6.4 billion, according to DeFiLlama. In the same period, competing blockchains saw 60% lower volumes on average, a sign that Ethereum lost market share.
According to Paul Brody, EY Global Blockchain Lead, one reason for Ether’s price underperformance relative to Bitcoin could be “the battle to keep Ethereum sufficiently and adequately decentralized.” Brody cites exchanges as highly centralized custodial validators, as well as some semi-centralized players and staking pool operations that invest funds from tens of thousands of individual crypto wallets.
Ether derivatives show balanced bets between bullish and bearish
Let’s examine the Ether derivatives metrics to determine the current market position of professional traders. For example, open interest on Ether options for the April 14 weekly expiration is $510 million, with neutral to bullish calls outnumbering protective puts by 36%.
Those ETH options bulls might be left empty-handed because 60% of their bets were placed at $2,000 or more. As a result, if the Ether price remains between $1,800 and $1,900 on April 14 at 8:00 am UTC, the result breaks even between put and call options. Furthermore, an expiration price between $1,900 and $2,000 represents a mere $100 million upside for bulls, which is unlikely to justify the cost of a price bomb.
Futures markets should also be examined to determine whether the Shapella hard fork has caused investors to become more risk averse. Quarterly ether futures are popular with whales and arbitrage desks, and typically trade at a slight premium on spot markets, indicating sellers are asking for more money to postpone settlement.
As a result, futures contracts in healthy markets should trade at a 5-10% annualized premium, a situation known as contango, which is not unique to crypto markets.
The Ether futures premium is currently 2%, down from 4% the week before. Despite being below the 5% neutral threshold, it does not show excessive shorting.
Related: Validation service to use the API for the ETH staking process
Traders should monitor staking unlock requests
Based on Ether derivatives, there is no reason to believe that professional traders are expecting a significant price correction as a result of the unlocking of the bets. Nonetheless, given the high transaction fees and declining DEX activity, the chances of a “buy the news” event are slim.
Professional traders would have used derivatives to bet against the Ether price because the event was widely publicized, which was not the case given the ETH futures premium. There are no obvious reasons for a rally, but derivatives traders don’t anticipate any panic selling. Therefore, unless the number of staking unlock requests increases significantly, Ether should remain near $1,900 for the foreseeable future.
The views, thoughts and opinions expressed here are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
