The Ethereum (ETH) futures market showed a drop in relation to the spot asset price this Monday (8). ETH contracts maturing in three months are trading at the biggest discount since crash of Covid-19 in March 2020.
Data provided by analytics platform Skew shows that three-month futures listed on cryptocurrency exchange Binance are trading at a steep 6% annualized discount to the spot price, while those on exchanges OKEx and FTX are seeing depreciation of more than 6%. 4%.
Futures markets typically deliver a premium, but in the case of Ethereum, it evaporated earlier this month.
The reversal apparently occurred as traders took short positions to protect their exposure to the bullish spot market brought on by the “Merge” update, part of Ethereum 2.0. They would be pricing in – and trying to guarantee profits on top of that – a possible “doubling” of the currency network, in a process known as hard fork.
The Ethereum Fusion – a network upgrade that will combine the current proof-of-work (PoW) blockchain with a proof-of-stake (PoS) blockchain released in December 2020, called “Beacon Chain” – will likely take place in September.
Last month, Ethereum founder Tim Beiko mentioned September 19th as the tentative date for the Merger. ETH has been rising since then, but, even with several tests already carried out, analysts point out some caution with the event, given the complexity of the procedure.
Chinese miner Chandler Guo, known in the industry, is against this update, and in favor of maintaining the current network mining mechanism. If Guo’s move gains traction and other miners are convinced of it, the Ethereum network could split in two, each with a cryptocurrency.
In the crypto environment, the success of updates depends on the adherence of users and miners (or validators). Unlike common software, in cryptocurrencies it is the network participants who decide which version to adopt after a change, not the company that developed it.
If this “doubling” does indeed happen with Ethereum, users who have ETH today will receive the new network’s token for free, which would be called “ETH PoW” – the coins will coexist, each on a different network. Something similar happened with Bitcoin (BTC) in 2017, when Bitcoin Cash (BCH) emerged.
“The ETH futures market is digesting the possibility [de que o hard fork aconteça]as the basis is negative, and uniting around the December 2022 expiration,” said Ainsley To, senior research analyst at Genesis Global Trading, in reference to cryptocurrency futures contracts.
“This reflects the demand for hedge most popular right now among traders: buy ETH on the spot market to try to win on the upside and be eligible to win the ETH PoW token in the event of a fork, and use ETH futures to hedge against that exposure,” said To.
QCP Capital, which specializes in cryptocurrency derivatives, expressed a similar opinion last week, saying that whoever “holds their ETH will earn an additional valuable ETH PoW token without taking any price risk on the ETH as the long position is protected by the futures trading.” uncovered”.
QCP holds a large position in the so-called “risk-free trade” in which every position has equivalent protection. Expecting the gap between the futures and spot markets to deepen as the Merger approaches, the company announced on its Telegram channel that it intends to hold the position for some time.
Ethereum founder Vitalik Buterin does not expect a potential hard fork to have a lasting impact on the new network after the upgrade. However, some exchanges, including BitMEX, Poloniex, and OKEx, have declared support for the possible fork – meaning if it happens, they would accept the new ETH PoW token.
Tron founder Justin Sun also came out in defense of the doubling (or bifurcation) of the network, promising support for the development of the new Ethereum that would emerge after the Merger.
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