Pay Attention Ethereum Holders #90
Market Meditations | February 3, 2021
Key technical and fundamental analysis including the launch of Ethereum Futures Contracts on Monday.
First of all, a big welcome to all new market meditators. We are delighted to be writing to 11,000+ traders and investors on their crypto journeys.
In today’s newsletter, we explore Ethereum technical and fundamental analysis to make sure readers are prepared for the CME Ethereum Futures contract launch on Monday.
Read, enjoy and share with your network. Let’s all grow richer together.
Visa To Allow Customers to “Buy and Sell Digital Assets” Such as Bitcoin ?
Visa is piloting a suite of application programming interfaces (APIs) that will allow banks to offer bitcoin services, the payments giant announced today. The Visa Crypto APIs pilot program will let clients “easily connect into the infrastructure provided by Visa’s partner, Anchorage, a federally chartered digital asset bank, to allow their customers to buy and sell digital assets such as bitcoin as an investment within their existing consumer experiences,” Visa said in a press statement. Visa envisions a product set that extends to other cryptocurrencies and stablecoins as well as other crypto services such as trading. Read more.
DeFi Options Protocol Opyn Raises $6.7 Million ?
Opyn (which enables decentralised options trading on Ethereum) has raised $6.7 million in a funding round led by Paradigm. Kain Warwick and Stani Kulechov also backed the DeFi project. The options protocol received $2.16 million in a seed round led by Dragonfly Capital last year.The team is working on reducing margin requirements, expanding options, and developing an AMM. Read more.
Yellen Convenes SEC, CFTC & Fed Leaders on Robinhood Question ?
Per a Feb. 2 report from the Wall Street Journal, Treasury Secretary Janet Yellen is gathering the leadership of the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Reserve, possibly as soon as Thursday. The SEC already announced that it was looking into recent market manipulation. The inclusion of the CFTC and the Fed suggest that the conversation is going to extend far beyond Robinhood, Reddit and GameStop. Read more.
Crypto Exchange Coinbase has Chosen Nasdaq for Direct Listing Venue ?
Coinbase has chosen Nasdaq as the venue for its direct listing, according to two sources familiar with the San Francisco crypto unicorn’s plans. On January 25, Nasdaq Private Market launched a secondary market for Coinbase stock, a move that allowed shareholders with vested equity to sell shares. Nasdaq Private Market offers services for companies ahead of an IPO, including “controlled liquidity programs for pre-IPO companies looking to raise secondary capital for shareholders and investors.” Read more.
Pay Attention Ethereum Holders
In this article of Market Meditations, we help you better understand what the CME Ethereum future is and how you can interpret such an event if you’re investing in the asset or trading its volatility. We even throw in some exclusive technical analysis at the end.
Following in Bitcoin’s Footsteps?
Although ETH was the talk of the town two years ago during the height of the 2017 bull market due to its spectacular and unexpected ascent to the $1400 price level, what is considered by many to be digital silver seems to have lost its luster since.
Bitcoin, according to TradingView’s Total Market Capitalization Dominance % chart, currently holds 62.85% of the cryptocurrency market cap whilst ETH represents only 16.40%.
One event, however, commonly credited with catalyzing Bitcoin’s parabolic price increase to $20k in 2017 was when the Chicago Mercantile Exchange (CME) introduced a futures contract for Bitcoin.
Well, the CME is back, but this time with a futures contract for Ethereum set to launch 08/02, just five days from today.
A Futures What Now?
A futures contract is an agreement between two parties that involves the obligation to sell or buy an asset on a future date at a fixed price. Woah, what’s that mean? Let’s take an example.
A producer of oil knows that on average over one year they produce 100 barrels of oil and a lock manufacturer knows that he needs 100 barrels of oil to sustain his business.
However the issue with oil is that the price per barrel can change drastically over the year. If the price per barrel increases, then the manufacturer of locks will have to pay more. If the price per barrel decreases, the producer of oil will have to sell for less. Seems risky.
A futures contract offers a solution: the seller of oil agrees to sell and deliver 100 barrels of oil to the lock manufacturer at a predetermined price and date. In order to enter into a futures contract, the buyer of the futures contract pays a premium.
If that was in through one ear (eye?) and out the other. Here is a ? link to a Futures Investopedia page which includes a short video explanation.
In the same manner as the lock manufacturer, you can lock in a predetermined price for a predetermined period of time with a futures contract. Of course, you will have to pay a premium for the certainty this type of contract gives you. There are no free lunches.
The Ether future is cash-settled and each contract represents 50 ETH.
Investors playing outright futures positions—a type of long or short trade that is not hedged from market risk—pay $0.25 per ether or $12.50 per contract
Investors playing calendar spreads—a lower-risk directionally neutral futures strategy that profits from passage of time and increase in implied volatility—pay $0.05 per ether or $2.50 per contract.
So, Will this Send Ethereum to the Moon?
The ETH futures product is significant because it will allow (and encourage) institutional investors to gain exposure to Ethereum.
This is because the CME futures product is one that is regulated and familiar. In fact, the CME group themselves state that they “made the decision to launch Ether futures based on strong customer demand and a clearly articulated customer need.”
In terms of the Ethereum ecosystem, an ETH futures contract implies that the world is one step closer to “accepting” ETH into the world of traditional assets.
Pantera Capital, an investment fund focused exclusively on digital currency and blockchain technology, writes that “once CME ETH futures launch, it legitimizes Ethereum as something institutional investors can own, and it’s actually a fairly easy bucket for them to allocate to (it fits in their tech disruption buckets).”
According to a Bloomberg article, Vijay Ayyar, the head of Asia Pacific with crypto exchange Luno in Singapore, believes “major players may be looking to get long exposure through futures, now that there is an institutional-grade product to do so.”
? So what could the launch of ETH futures mean for price? Seasoned members of the crypto community will remember that the Bitcoin bull market top of 2017 coincided with announcement of a Bitcoin futures contract. It’s worth mentioning, however, that the previous bull cycle timeline suggests that the top of this bull market should not occur for 6-12 months.
Short-term the ETH futures could turn into a “sell the news” event. Nikolaos Panigirtzoglou, global market strategist with JPMorgan Chase & Co said that Ether Futures can lead to “negative price dynamics”.
This is because many people use the futures market to hedge their spot exposure. In other words, if you hold ETH spot you could open a short position on the futures market (thereby increasing selling pressure) if you want to protect the value of your USD without selling the underlying asset.
Longer-term, the ETH futures contract is essentially a green light for some of the largest hedge funds with massive capital to gain exposure to ETH. If the reaction is anything like what we have seen in Bitcoin, hedge funds will likely come in droves and create a waterfall of buying pressure.
Michael Saylor, for example, is hosting “Bitcoin for Corporations” today which will walk institutions through the process of buying their first Bitcoin. It seems Pantera Capital is doing the same with ETH.
A Story Through Charts
Let’s jump into some technical analysis.
ETH/USD (DAILY CHART)
From 10/01 to 02/02 (a period of 23 days), ETH/USD consolidated around and underneath its previous ATH between $1420-$1440.
It’s worth nothing that before Bitcoin broke its $20k level and went on a hair cinching rally to $40k, it consolidated for around 16 days (between 30/11 and 16/12).
Whilst consolidating, ETH maintained HTF bullish market structure by printing higher highs and higher lows.
The most challenging resistance proved to be the $1440 level, with price rejecting the level multiple times before bulls successfully ate through the wall of sellers on 02/02 and entered price discovery.
Most significantly, ETH just printed its highest daily close in three years. Bulls will likely become aggressive and a retest of the $1440-$1480 level seems improbable. Using Fibonacci levels, the next short term target is the 0.382 level at ≈1700 and a 1 to 1 extension of ≈2000.
ETH/BTC (WEEKLY CHART)
ETH/BTC has been consolidating between the 0.01 and 0.04 levels since 2018 September.
Since 2019 September, ETH/BTC has maintained bullish market structure by printing higher highs and higher lows consistently.
On 24/01, ETH broke out of this massive multi-year accumulation range and printed a HTF close above the most significant resistance level of 0.04.
This week, ETH/BTC has successfully retested this level as support and thus we can expect continuation.
The next HTF resistances are 0.05 (which is confluent with a $2,000 ETH on the USD pair) and 0.08.
And there you have it. Ethereum ATH and price action as well as a breakdown of important fundamental events (launch of Futures Contract) to take a view on short term and longer term direction of travel. If you have skin in the Ethereum game, be sure to look after it. In our newsletter, we will make sure you are kept up-to-date.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. I am not a financial advisor. Every investment and trading move involves risk. Do your own research when making a decision.