Ethereum futures premium hits 1-year high — Will ETH price follow?

Ether (ETH) price has declined by 14.7% since its peak at $2,120 on April 16, 2023. However, two derivatives metrics indicate that investors have not felt this bullish in over a year. This discrepancy warrants an investigation into whether the recent optimism is a broader response to Bitcoin (BTC) breaking above $34,000 on Oct. 24.

One possible reason for the surge in enthusiasm among investors using ETH derivatives is the overall market’s excitement regarding the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States. According to analysts from Bloomberg, the ongoing amendments to the spot Bitcoin ETF proposals can be seen as a “good sign” of progress and impending approvals. This development is expected to drive the entire cryptocurrency market to higher price levels.

Interestingly, comments issued by the U.S. SEC Chair Gery Gensler’s in 2019 reveal his perspective. During the 2019 MIT Bitcoin Expo, Gensler termed the SEC’s position at the time as “inconsistent” because they had denied multiple spot Bitcoin ETF applications, while futures-based ETF products that do not involve physical Bitcoin had been in existence since December 2017.

Another potential factor in the optimism of Ethereum investors using derivatives may be the pricing of the Dencun upgrade scheduled for the first half of 2024. This upgrade is set to enhance data availability for layer-2 rollups, ultimately leading to reduced transaction costs. Moreover, the upgrade will prepare the network for the future implementation of sharding (parallel processing) as part of the blockchain’s “Surge” roadmap.

Ethereum co-founder Vitalik Buterin highlighted in his Oct. 31 statement that independent layer-1 projects are gradually migrating and potentially integrating as Ethereum ecosystem layer-2 solutions. Buterin also noted that the current costs associated with rollup fees are not acceptable for most users, particularly for non-financial applications.