With Ethereum Futures Open Interest Hitting a Record Peak, Is The Market Sentiment Bullish or Bearish
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With Ethereum Futures Open Interest Hitting a Record Peak, Is The Market Sentiment Bullish or Bearish?

Ethereum futures open reached a new all-time high, calling into question whether ETH can rally to $3,800.

Concerning the cryptocurrency exchange KuCoin indictment from the US Justice Department, questions concerning its implications on the industry and the chance of an Ether ETF approval have emerged. For some people, stricter regulations are considered a bad thing while others insist it can make the May 25 green light for an Ether ETF possible when the SEC is meant to give its final decision.

The debate’s crux lies in whether ether should be classified as a commodity under the jurisdiction of the CFTC or a security regulated by the SEC. However, KuCoin’s complaint by CFTC described three digital assets such as Bitcoin, Ether, and Litecoin which are commodities, contradicting the SEC’s opinion that Ether could qualify to be a security.

BlackRock CEO Larry Fink said listing an Ethereum ETF might still be doable even if it were declared a security by regulators. Nevertheless, James Seyffart, a Bloomberg analyst, has maintained his forecast of ETF denial in May citing that Ethereum futures trading has been permitted by CME since February 2021 because CFTC had previously recognized Ether as a commodity.

This rise in institutional participation seemed positive for the growth of the Ether futures market achieving record open interest on March 28th. Nonetheless to say this surge is driven solely by institutional demand would oversimplify things.

In derivatives markets, exchanges like Binance ($4.55 billion) and Bybit ($2.4 billion) dominate while CME’s open interest on Ether futures stands at $1.3 billion. This means that leverage demand tells us about sentiment since longs will eventually offset shorts in derivatives.

Current perpetual contracts thus reveal a positive rate of 0.04% for bullish/bearish ETH leverages versus funding rates indicating moderate optimism with any reading above 1.2 percent per week being excessive bullishness.

To get more insight into how professional traders feel about it all, one must consider the options market about their skew whose delta stands at 25%. This means that a skew above 7% shows expectations of falling prices while below -7% denotes excitement and priced-in upside protection. Some recent information reveals a barely positive skew of around 7%, which signals a slightly bearish bias among market makers.

To summarise the issue, KuCoin has brought back the old controversy about whether ether is a commodity or security while derivatives data show somewhat optimistic but still more bearish sentiments from professional Ether traders who are now waiting for the SEC to make its decision on ETFs.

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