How Ethereum traders actually merge

Predictions that the Ethereum merger would be a “buy the rumour, sell the news” event have largely been confirmed following a much-anticipated update for the second-largest crypto by market cap.

At least, that’s the post-merger conclusion of Glassnode, a cryptocurrency market intelligence provider that foresaw a sell-off in ethereum futures and options markets last month. The company called the ethereum upgrade “one of the most impressive engineering feats in the blockchain industry.”

“It’s not surprising that profits are being made where there are profits,” Glassnode wrote in Monday’s report. Report on the merger. Glassnode noted that prior to the event, ETH was one of the few assets that performed well given the bearish macroeconomic environment this year.

However, the market appears to have anticipated the sell-off. Before the merger, Ethereum’s funding rate fell to an all-time low of -1,200% among traders looking to maintain short positions.

“The funding rate has since returned to full neutrality, suggesting that much of the short-term speculative premium has dissipated,” the firm explained.

In the perpetual contracts market, funding rates are periodic payments between traders speculating on the short-term future price of Ethereum. Payments ensure that the perpetual contract price closely tracks the price of the underlying asset.

A positive funding rate means that traders who hold long positions are paying for short positions, and indicates that the market is generally bullish on the future price of the asset. By contrast, a negative funding rate means that shorts are paying longs, and the market suspects the price of the underlying crypto will fall.

Funding rates entering the merger were even lower than the -998% rate observed in March 2020 — the so-called “Black Thursday” month that devastated the cryptocurrency market.

The combined total open interest (the number of open futures commitments surrounding ethereum) fell 15%, from roughly $8 billion to $6.8 billion. However, it is unclear how much of this is due to the drop in Ethereum prices, which affects the dollar value of ETH-denominated futures positions.

When calculating open interest in ETH, futures open interest appears to be at an all-time high and has even increased over the past week. According to Glassnode, this shows that many traders are still maintaining their risk-hedging positions.

Meanwhile, interest in call options, which surpassed Bitcoin for the first time in August, fell by $600 million after the merger. The call option position value is now $5.2 billion, “still well above the norm for 2021.”

A call option is a temporary guarantee that a trader can buy a given asset at a predetermined price if the trader chooses. A put option is the same but for selling an asset.

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