Ethereum futures predict a bad, bad 2022 for ETH price ahead

Ethereum (ETH) Bullish

YEREVAN ( — Ethereum’s native token Ether (ETH) price has rebounded by nearly 90% more than a month after bottoming out at $883. But that does not guarantee a continued upward trend for the rest of the year.

New downside risks for Ether come from its derivatives market, which now shows a huge cost basis between its spot and futures prices. Notably, the spread between spot ETH and the Ether December 2022 futures stands at $7.5 below zero, meaning “backwardation” in technical terms.

ETH1230-ETHUSD daily cost basis chart
ETH1230-ETHUSD daily cost basis chart. Source: TradingView

Ethereum demand up due to ‘hard fork’ fears

Backwardation can occur due to a sudden increase in demand for the underlying asset, which forces its price higher in the short term. Nonetheless, traders anticipate the prices to correct later, prompting them to short futures contracts, leading to a negative spread.

The spot demand for ETH is seemingly rising ahead of the Merge, notes Roshun Patel, former vice president of institutional lending at Genesis Trading. To recap: the Merge is a network upgrade that would switch Ethereum’s core protocol from proof-of-work to proof-of-stake in September.

Patel asserts that the latest backwardatin is the result of fears that the Merge would not go ahead as planned. Instead, Ethereum PoW supporters would break away from the PoS side to keep mining on the old chain. In other words, Ethereum risks splitting its chain into two.

A split-event would involuntarily create a copy of existing Ether tokens in supply, thereby leaving traders with a copycat version of their existing ETH holdings. In other words, traders stand at benefiting with an airdrop if a “hard fork” happens after the Merge.

Nonetheless, an online survey conducted by Galois Capital, a crypto-focused hedge fund, found that 53.7% of respondents see a smooth Ethereum transition to PoS. In comparison, over 33% believe a hard fork would occur.

Therefore, a no-fork scenario risks negating spot ETH gains drastically.

Where would Ether head next?

From a technical perspective, ETH’s interim bias looks skewed to the upside, according to the setup in the chart below.

ETH price daily price chart
ETH/USD daily price chart. Source: TradingView

Nonetheless, the gains could evaporate after the Merge, in part due to “sell the news” sentiment, recession fears, and if the PoS upgrade is successful. Therefore, ETH would risk falling to new yearly lows.

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