 Welcome back to another Cointelegraph Crypto Market Update. I'm your host, Jackson. Today I'm talking to Marcel Petchman, one of Cointelegraph's very own crypto market analysts. We're going to discuss the main reasons why ETH made new all-time highs this week, and we'll also look at why this could be the launching point for ETH to $5,000. Let's get into it. Hey Marcel, great to have you on the show. How are you doing today? Hi, Jackson. Fine. Thanks for having me again. Yeah, I'm really excited about the stuff we're about to talk about. Some great movements in the markets this week. Ethereum is breaking all-time highs all over the place. I think it just pushed above $3,500. In one of your articles, you cited two key metrics that prove pro traders are behind ETH's recent movement. Could you explain your reasoning in further detail? Okay, so one of the main metrics that I use to measure if pro traders are bullish or bearish is the futures premium. So we have two kind of futures contracts. The first one is the perpetual one, which doesn't expire. And they have the funding rate every eight hours, which is mostly used by retail traders. And the second one is the contract that expires every three months. So when it gets to the end of the month, the last Friday, the contract settles and it no longer exists. Because of the fact that it doesn't have a funding rate, their prices differ vastly from the regular spot exchange. So the more overheated the market is, the higher the futures for June and September are trading. And what I've been seeing for Ethereum over the past month is that those futures, which are mostly used by pro traders, have been trading with 22 to 23% annualized premium, which means the market has been heated for quite some time, even before hitting $3,000. On the other hand, when we focus on the retail oriented contracts, the perpetual contracts, we can measure how bullish or bearish they are by using the funding rate, which is the rate that we've talked about that's charged every eight hours. And the funding rate over the past week or 10 days for Ethereum has been mostly fat, like 0.03% every eight hours, which means like 3% per month or nothing unusual for Ethereum. So it tells me that pro traders have been bullish for quite some time over a couple of weeks, while the retail traders are still waiting for a buy opportunity. So the institution of trading the futures, the retailer trading the perp swap, and essentially the difference in those prices when compared to the spot, especially in the futures, shows that the institutions are very bullish at the moment and are buying a lot, whereas retail is just kind of waiting to see what happened, essentially is what you're saying. Yeah, the retail is more, how can I say, they're always waiting for a dip to buy. Nobody wants to pay the all-time high. So this is reflected on the perpetual funding rate, every eight hours. They're not optimistic right now, even though Ethereum is at all-time high, it doesn't seem like it's going to stop anytime soon. If you also check the on-chain data, which shows the withdrawals from exchange, large withdrawals from exchange, like indicating that it's institutional clients, it's heavy clients, it's arbitrage, it's whales, it's market makers, they're withdrawing from exchanges, maybe placing that Ethereum on DeFi, decentralized finance looking for better yields. But if there's less Ethereum at the exchanges, there's less offer. So if buyers come in, there's less to be offered. And this creates upwards pressure for price. So you're saying that the institutions are essentially kind of starving the exchanges and that lack of supply in the exchanges is driving up the price right now? Yeah, there are two or three main factors behind it. The first is taking for Ethereum 2.0. So large, you needed like 32 Ethereums to become a validator. So large clients started doing the, converting their Ethereum 1.0 into 2.0 and sending it for staking on the new network. And there's also the DeFi opportunities, either doing yield farming or simply sending to a loan and borrow application such as Compound or Balancer. So these guys are getting better yields, better returns for the deposits outside of exchanges. So yeah, it's creating and it's making it more illiquid for the new guys who are trying to get in the market and buy Ethereum. So it creates an upwards pressure. And do you see this trend continuing? Oh, definitely. It's never a good idea to bet against big money. And as long as the DeFi and automated market making strategies are yielding 20% or higher in US dollar, these guys are going to continue to flood the market and for an institutional client to buy 10, 20, 50, 100 million dollars in Ethereum, it's nothing for them. And it makes a huge impact on price. People have the wrong idea that for Ethereum, market cap to go from 300 billion to 400 billion dollars, there needs to be, you know, half a billion of inflow in Ethereum. That's not true. Sometimes five clients buying 50 million dollars each, it's going to make the market capitalization go from 300 billion to 400 billion because the percentage of stock effectively changing hands, it's like 10% of the stock or 15% because the other parties held at cold wallets, at decentralized finance, the TVL of decentralized finance has surpassed 100 billion dollars. So most of the Ethereum is not circulating, it's not being bought and sold at exchanges. So yeah, the trend should continue. But I want to touch on another one of your articles that you wrote in which you said that the Ethereum bulls are in full control of this week's options expiry. And could you explain the significance of this and what it means for the price of ETH heading into next week even? Okay, so Jackson, let's first explain for our viewers the difference between options and futures. In futures markets at all times, buyers, the longs and the seller shorts are matched at all times. There's no way for the buyers to be higher or sellers to be stronger than the buyers. What can change is how leverage each side using. So this leverage imbalance, you can see the difference by the perpetual funding rate, the fee charges every eight hours. In the option markets, it's completely different. There are two kinds of options that are completely separate. They don't need to be balanced. The first one is the call option, which give you the buyer the right to acquire an asset in the future. For example, Ethereum is trading at $3,500 and I think it's going to be at $5,000 by year end. So what I can do is I buy a $4,000 call option. So I have the right to acquire Ethereum for $4,000 in December. For this right, I pay an upfront. For the seller, okay, I'll pay $500 now. So in December, if I want, I can pay fixed price $4,000 for Ethereum. So that's the call option. On the other hand, we have the put option, which is usually used for hedging strategies. The buyer has the right to sell Ethereum. So I can buy a protective bud for $2,500. So in June or September or December, if I choose so, if Ethereum is trading at $2,000, I have the right to sell it for $2,500. It's a fixed price and I pay an upfront for this. So what happened for this Friday's expiry on May 7th is that the price increased so much that all of these protective options were priced at below $2,800. No one was expecting the price to go that higher. So every option trader that bought a protective option, it's now, this option is not worthless. Nobody wants to sell Ethereum at $2,500 or $2,600 if it's trading at $2,400. So on the other hand, everybody that has been bullish on Ethereum using options, let's say he bought an option to buy at $3,000, he's going to exercise it. I mean, he's going to want to buy Ethereum, paying $3,000 fixed, and then maybe selling the macro for $3,500 or holding it, but he's going to exercise his buy option. He's going to make the seller buy Ethereum. So this puts upwards pressure on the price because the sell options, the put options are dead. They're all from $2,800 and below. The majority of the buy options are still good and they're going to be exercised. If you have the right to buy Ethereum for $2,700, you're going to use it for sure. And the seller needs to give you the Ethereum. So it puts upward pressure for Friday's expiry on May 7th. So is that upward pressure already being priced in right now or will there still be, you think, some more significant movements to come because of this upward pressure later this week? Options, the one that we usually trade on Deribit and OKX, they're called European options. So they can only be settled at the expiry. You cannot call the option seller two days ahead and say, well, I want to liquidate my position. If you want, you can sell it in the market if there are buyers for it. So you lock the profits in. But the majority of the options, people just wait for the last day. So yeah, over the last 12 hours of the expiry, which happens at 8 AM, UTC, United Clock on Friday. So they're still room for upward pressure on Friday morning. So on Friday, we're going to see a large amount of buying pressure come into the market from all of those options being exercised. Got it. And then, I mean, looking to next week, do you see the buying pressure continue upward or do you think we're going to see a big spike on Friday? And then it's probably going to do some sort of correction. What are your thoughts on that? It's very early to tell. But if I were an Ethereum bear, I would probably wait for the end of month to try to put in a downwards pressure because right now the momentum is really good to Ethereum. So I don't think they're going to try to fight for the next week as well. They lost this one. They got slaughtered. The bears got killed. But it's going to stay like this for, I don't know, a month, a couple of weeks until the institutional guys are buying, get out of the way. Don't short it. You're going to get killed. Got it. Got it. Got it. And then we could probably expect some kind of correction when those institutions settle down or no. No, because unlike retail guys, these institutionals, as we've seen on Bitcoin, they bought all the way from 40,000 to 60,000. But they'll stay buying orders at 50,000, for example. So if the market drops like 10, 15, 20 percent, they'll be back buying for more. Sure. Got it. It's a different animal, I would say. Like what we've seen at cryptocurrencies at the end of 2017, the beginning of 2018, that we saw the retail formal, then the market dropped 20 percent and the guys just market sold. Then the market dropped 30 percent. The guys just market sold. So in one month, you saw a 60 percent correction. I don't think that's going to happen any longer. As long as these institutions continue buying, they'll just average pricing. So if the price drops 20 percent, they'll be buying more. As I said, a $20 million, $50 million buy order for these guys is nothing. Got it. Any final remarks you have about the current state of the market right now? Yeah. I think there's a huge question mark that's open for this month, May, happening in a couple of weeks. That is the iPhone X stator deadline. So they settled with DOJ, the Department of Justice of New York. Three months ago, they paid $18 million, $19 million fine. But they agreed to every three months to give a statement to show where the $50 billion of money that they have is invested at, what kind of assets those are. And if an X stator fail to provide this to DOJ, it's going to be a problem, definitely it's going to be a problem. I'm not saying that stator is the most relevant outcoin or Sablecoin, but yeah, it has an impact on cryptocurrency valuation in general. So it could be bad. So as in if Tether inaccurately reported or the DOJ found some discrepancies, they could lock up Tether's liquidity and it would jam up the entire crypto space. Is that essentially what would happen? It's going to create huge problems for exchanges that are heavily dependent on Tether, namely OQX, Huobi, Binance. Out of these changes that are 70% or 80% of the volume are Tether based, they could have problems, liquidity problems. So I don't know, I think the market is overlooking this issue. Maybe it's a 5% risk of DOJ saying, well, I don't agree with these numbers. I'm going to sue you or I'm going to halt all your transactions for a month. It's a risk. I don't know if it's 3% risk, 10% risk, 15% risk, but market is overlooking at it for sure. Yeah. Well, for all those watching, make sure you stay tuned into Cointelegraph because as soon as we have some news on that, we'll make sure to cover it. I suggest people to continue looking at skew.com, buybt.com for the funding rate for the three months premium because those are the indicators that will tell you in advance if pro traders continue buying Ethereum or not. This rally could sustain until $5,000 easily. Don't bet against it. It's large clients. They're withdrawing from exchanges. We're seeing $100 million plus movements on chain. So this could continue for a long time. Thank you for all that amazing insight, Marcel. Thank you, Jackson, for the opportunity. Great to be here. Thank you, everyone, for watching. That was Marcel, who is a market analyst at Cointelegraph. If you enjoyed the show, please hit that like button, subscribe to our channel, and we'll see you all next time.