ETH Rally to $3.2K Unlikely Based On Data

Key takeaways:

• ETH failed to reclaim $2,600 as futures and options data show weak conviction from traders. 

• Ethereum’s layer-2 growth hasn’t translated into increased demand for ETH due to low rollup transaction fees.

• The Solana ETF launch undermined ETH’s altcoin leadership and reduced the odds of a rally above $3,200.

Ether (ETH) gained 9% between Tuesday and Thursday but failed to break above the $2,600 mark. As the price rallied, traders pointed to a bullish technical formation known as a “golden cross” that could push ETH to $3,200, a level last reached in January. However, derivatives data suggests ETH traders are not feeling as bullish. 

X user MerlijnTrader pointed out that the golden cross formation on Wednesday is “where bull markets tend to begin,” noting that technical analysis shows short-term momentum strengthening relative to the longer-term average. For MerlijnTrader, ETH is “sending a clear signal,” suggesting that the next bull run may be approaching.

ETH derivatives signal low confidence amid increased competition 

Despite ETH’s jump to $2,600 on Thursday, there was no significant uptick in demand for leveraged long positions. In a neutral market, monthly contracts typically trade at a 5% to 10% annualized premium over spot prices to reflect the extended settlement period.

Currently, the Ether futures premium remains below the 5% neutral threshold, even after recent price gains. The last time this indicator signaled a bullish stance was Jan. 26, when ETH traded near $3,300. Notably, that date aligns with the launch of the Official Trump (TRUMP) memecoin on Solana, which boosted that blockchain’s volumes and revenue.

X user cryptunez observed that decentralized applications (DApps) on Solana generated $1.3 billion more in revenue than those on Ethereum.

However, this narrow analysis overlooks Ethereum’s strategic shift toward layer-2 scaling. Much of the ecosystem’s DApp revenue now flows to Base, Arbitrum, Polygon, Optimism, and Unichain. Additionally, Solana has faced criticism for its maximal extractable value (MEV) practices, which allow validators to reorder transactions for profit.

X user R89Capital aptly captured investor sentiment, noting that Ethereum supporters “were right about companies” building on the layer-2 ecosystem but “wrong about it being bullish for ETH.” Essentially, rollups incur extremely low fees for data processing, encouraging adoption, but they don’t generate meaningful demand for ETH itself.

Viktor Bunin, protocol specialist at Coinbase, pointed out that interoperability within Ethereum’s layer-2 ecosystem remains a major obstacle. The absence of incentives for “big players to collaborate” has led each team to pursue isolated solutions. Bunin believes that meaningful progress will require more direct involvement from the Ethereum Foundation.

To gauge whether professional traders are losing confidence in ETH’s price rally, it’s useful to examine the ETH options delta skew. In bearish conditions, put (sell) options tend to trade at a premium over comparable call (buy) options, pushing the indicator above the 6% neutral threshold.

Currently, the ETH options skew sits at 1%, suggesting traders see equal likelihood of price moves in either direction, a reading unchanged from the previous week. 

Related: ETH news update: Will expanding corporate Ether treasuries send price to $2.8K?

The lack of confidence in Ether derivatives reinforces the notion that traders have little conviction in ETH’s ability to reclaim the $3,200 level. Some of that caution likely stems from the launch of the first spot Solana exchange-traded fund (ETF) in the United States on Wednesday.

Not only did the Solana ETF undercut ETH’s leadership among altcoins, but it also raised the bar by incorporating embedded staking. Unless Ethereum can provide ETH holders with direct benefits from tokenization and institutional adoption, a sustained rally in the near term appears unlikely.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.