The price has just undergone a sharp correction over the past two weeks. This price drop not only triggered more than 114 million USD in liquidations of leveraged ETH futures contracts but also pulled the futures premium compared to the spot market down to its lowest level in over a year. Some optimistic traders view this as a signal of a bottom, opening up buying opportunities. But is this perspective truly based on solid grounds? Let’s analyze the data to clarify.
1. ETH futures premium sharply declines: What does it indicate?
In the cryptocurrency market, Ethereum's monthly futures contracts often trade at a premium compared to the spot market. This arises from sellers demanding a premium to compensate for the longer settlement time. According to data from Laevitas.ch, an annual premium of 5% to 10% is generally seen as a signal of a neutral market, reflecting the opportunity cost and risks that exchanges bear. However, since March 8, 2025, this rate for ETH has fallen below neutral after a price drop of up to 24% in the previous two weeks.
Currently, the annual premium for ETH futures contracts has dropped to just 2%. This alarming figure indicates a sharp decline in demand for leveraged long positions. However, history shows that this index is not always a reliable forecasting tool. For instance, on October 10, 2024, the premium rate reached 2.6% after ETH fell 14% over two weeks. But then, as the price recovered almost all its losses, the index rebounded to 7%. This demonstrates that the premium rate is often influenced more by recent price volatility than by accurately predicting future trends.
2. 'Whales' lose confidence, derivatives market signals risks
To better understand the sentiment of major investors, often referred to as 'whales', analyzing the options market is a crucial step. The 25% delta skew index measures the difference between the prices of put and call options, providing insight into the predictions of professional traders. When this index exceeds 6%, the market leans bearish, with heightened demand for asset protection. Conversely, when it falls below -6%, bullish sentiment tends to dominate.
Currently, the 25% delta skew index for 1-month ETH options stands at 7%, according to data from Laevitas.ch. This figure reflects a stark lack of confidence from major traders and signals the risk of ETH prices potentially continuing to decline further. With the important support level of 1,800 USD under threat, the derivatives market shows no signs that the price correction has bottomed out.
3. Weakening Ethereum network activity
In addition to factors from the derivatives market, the internal situation of the Ethereum network is also raising many questions. Some analysts suggest that the decline in network activity is the main reason for ETH losing its appeal. Meanwhile, the trend towards layer-2 scaling solutions is believed to have significantly reduced the potential for transaction fees on the base chain.
To maintain the operation of validators, the Ethereum network must increase ETH issuance when there is insufficient capital flow. This reduces net profits from native staking operations—a crucial factor attracting investors. In fact, staking was once a bright spot for Ethereum after its transition to a Proof-of-Stake mechanism in 2022, but now, increasing competition is causing this model to lose its edge.
4. Fierce competition from rivals
Ethereum is no longer the only player in the blockchain space. In addition to long-standing competitors like BNB Chain and Solana, specialized networks targeting specific needs have now emerged. Hyperliquid, focused on synthetic assets and perpetual trading, and Berachain, optimized for staking assets in cross-liquidity pools, are prime examples.
Notably, some major decentralized applications (DApps) are leaving Ethereum. Ethena, a synthetic dollar protocol with a total value locked (TVL) of up to 5.3 billion USD, has announced plans to transition to its own layer 1 blockchain by the end of 2024 after successfully raising 100 million USD. This move not only diminishes Ethereum's appeal but also raises questions about the network's ability to retain large projects in the future.
5. Pectra upgrade: Hope or risk?
Although the current situation seems somewhat bleak, there is still a glimmer of hope for ETH. The Pectra upgrade, expected to roll out in the coming weeks, is anticipated to improve base layer fees and enhance user experience. If successful, this could be a factor that helps Ethereum regain its footing amid competitive pressures. However, the actual effectiveness of this upgrade remains a significant question mark, requiring investors to keep a close watch.
=> Conclusion: Based on data from the derivatives market and the internal situation of Ethereum, there is no compelling evidence that ETH has hit bottom. The record-low futures premium and the bearish sentiment from 'whales' indicate that downside risks remain. Additionally, increasing competition and declining network activity further cloud ETH's short-term outlook.
However, the Pectra upgrade could be the 'light at the end of the tunnel' if it brings about substantial changes. In the current context, investors need to be cautious, weighing options carefully rather than hastily trying to 'catch the bottom'. With a vast altcoin market in flux, the opportunity for ETH to outperform competitors is still quite slim at this moment.
