Cryptocurrency

State of Ethereum derivatives market post-Merge

Zegex

Previous research conducted by CryptoSlate suggested that the Ethereum merger would be an event to buy rumors and sell news.

With ETH down 20% over the past 7 days, what does the current derivatives market analysis reveal?

Ethereum Futures Perpetual Funding Rate

Perpetual funding rate refers to periodic payments made to or by derivatives traders, both long and short, based on the difference between the perpetual contract market and the spot price.

During periods when the funding rate is positive, the perpetual contract price is higher than the mark price. Therefore, long traders pay for short positions. In contrast, a negative funding rate indicates that the price of the perpetual contract is lower than the marked price and that short his traders pay for longs.

They differ from standard futures contracts in that the perpetual element means that traders can hold positions without expiration of the contract. However, the purpose of the funding rate is to act as a mechanism for aligning contract prices with the spot market.

The chart below shows that traders were paying nearly 1,200% annualized funding rate to short Ethereum as the merger approached. The magnitude of the short surpassed levels seen at the height of the covid crisis.

After the merger, funding rates have returned to near neutral, suggesting that short-term speculation is over, and funding premiums have disappeared accordingly.

Ethereum Futures Perpetual Funding Rate
sauce: Glassnode.com

Option put vs. call position

Open interest refers to the number of active option contracts. These are contracts that have been traded but have not yet been liquidated by an offsetting trade or allocation. A put option is the right to sell at a specified price by a specified date and a call is the right to buy at a specified price by a specified date.

The chart below shows that both put and call options sank after the merge. Calls continue to rise, with over $5 billion still held, while puts remain relatively subdued. is.

This suggests that traders still want to go long despite the post-merger price adjustment.

Ethereum Options Put vs. Call Position
sauce: Glassnode.com
Posted In: Ethereum, Research

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