Ethereum up 10% but futures at all time low towards The Merge

Last Updated: 11 August 2022

The price of Ethereum has risen 10% in the last 24 hours, bringing the price of ether to €1811. In just over a month is The Merge, and the futures markets seem to be hedging.

Ethereum rises 80%

On 2 July, the price of Ethereum reached its lowest point of the year. You could not get rid of your ether, and that is a good thing. On that day, ether was traded for just over 1000 euros.

In the meantime, the price has risen by 80%, and at the time of writing, the value is 1811 euros.

Economists say that markets and charts do not lie. The market is preparing for The Merge on 19 September. What that is, we will explain later in this article. The price chart above represents the spot market, which is what the normal price is called.

Betting on a lower price of Ethereum

Apart from that, there is also the futures market, a market where traders buy contracts to gamble on a rise (long) or a fall (short). The data shows that the futures market has fallen to an all-time low. According to Arcane Research, this is a new trading strategy where the big boys expect the price of Ethereum on the spot market to fall hard after The Merge.

The amount you have to pay for a short or long contract is called a premium. Incidentally, these types of contracts are not just for gambling but also serve as a hedge. As an insurance against violent movements in the market.

For example, you can buy an ether to hope for a price rise, and at the same time you can conclude a short contract in case the price falls.

Discount on premium Ethereum futures

Ethereum futures are always traded at a small premium compared to spot prices. This is normally not a problem, and is also the case with other crypto currencies. But what if the difference gets out of hand?

Last week’s figures show that when compared to spot prices, the premium on Ethereum futures is getting bigger. This started at crypto exchange Binance, where futures were trading at a 5% discount on Monday. In the course of this week, we saw this pattern on other exchanges as well.

This is not the first time futures have traded at a discount, but it is the lowest ever.

Miners go into resistance

What is going on? On 19 September, The Merge will be carried out. This means that Ethereum will stop mining and they will switch to another way of reaching consensus. This will ensure a faster network and that the energy consumption will drop by 99.99%.

Joy all around, you might say, but not for miners. Their whole business model is falling apart. That is why some miners are threatening to carry out a hard fork in order to continue mining ethers. Chances are that nobody will see these new ‘ethers’ as real ethers, but for now, at least the miners can make quick money with them.

Fund Galois Capital wants to take advantage of The Merge and a potential hard fork, they are using a delta neutral strategy, holding spot and short quarter futures of equal size. Since they announced this, the discount on ETH futures has emerged.

Borrowed from bitcoin cash hard fork

Suppose a hard fork is performed after The Merge, then there are basically two blockchains, each with its own currency. Galois Capital is betting that the new hard fork currency will take some of the value from the current ether price.

This is not the first time traders have played the game this way. In August 2017, Bitcoin experienced a hard fork from which Bitcoin Cash was born. At the time, the premium on bitcoin futures was itself at a 9% discount.

  • Steven Gray

    Steven Gray is a journalist with a heart for crypto. He filters the wide range of news and ensures that it reaches the public in a comprehensible way. He often does this with the support of technical analysis.

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