Ethereum futures backwardation hints at 30% 'airdrop rally' ahead of the Merge

Ether (ETH) bulls like a positive spread between its spot and ETH futures prices because the so-called contango reflects optimism about a higher rate in the future. But as of Aug. 1, the Ethereum futures curve slid in the opposite direction.

Ethereum quarterly futures in backwardation

On the daily chart, Ethereum futures quarterly contracts, scheduled to expire in December 2022, have slipped into backwardation, a condition opposite to contango, wherein the futures price becomes lower than the spot price.

The spread between Ethereum's spot and futures price grew to -$8 on Aug. 1. 

One one hand, the current ETH spot price being higher than its year-end outlook appears like a bearish sign. However, the conditions surrounding the current negative spread between the Ether spot and futures price suggests traders may actually be bullish on ETH.

For instance, Bitcoin (BTC) has gained 15% since its futures entered backwardation in late June for the first time in a year. 

ETH could rally on "airdrop" hopes

Moreover, a potential chain split will likely be bullish in the run-up to the Merge in September, according to some analysts. 

Roshun Patel, former vice president of institutional lending at Genesis Trading, noted that the December Ether futures have flipped into backwardation due to Ethereum "fork odds," which could prompt traders to buy spot ETH ahead of the Merge.

Meanwhile, Patel hinted that traders could be offsetting their upside spot risks by taking bearish positions on December futures contracts.

dec flipping into backwardation on eth starting to price in fork odds. Back in 2020 the play with the bchabc fork was buy spot and short the quarts pic.twitter.com/Oyde1htnz8

— Roshun Patel (@roshunpatel) July 31, 2022

The statement came after Galois Capital's survey on the Merge. In the July 28 Twitter poll, the crypto hedge fund asked its followers whether or not the Merge would end up splitting the Ethereum chain into the proof-of-work (PoW) ETH1 and a proof-of-stake (PoS) ETH2.

Of the respondents, 33.1% said ththe upgrade would lead to a hard fork, while 53.7% anticipated a smooth network transition.

Question 1: What happens during the merge? If Choice 2 or 3 go to Questions 2-5.

— Galois Capital (@Galois_Capital) July 27, 2022

Ethereum's potential chain split means that ETH holders will have an equal amount of tokens on both chains. In other words, an airdrop that grants ETH holders the same amount of ETH1 tokens, a la Ethereum Classic (ETC) in 2016.

ETH price technicals flash "golden cross"

Ether now consolidates inside a key $1,650–$1,750 resistance bar that served as support during the May–June 2022 session.

Meanwhile, the token's 20-day (green) and 50-day (red) exponential moving averages (EMA) have also formed a "golden cross," suggesting an interim bullish outlook.  

A breakout emerging from the $1,650–$1,750 resistance bar could have ETH eye $2,150 as its next upside target. This level was instrumental as resistance in May and June and support in January. It now coincides with the 200-day EMA (the blue wave) near $2,180, up almost 30% from August 1's price.

Related: Ethereum Merge: How will the PoS transition impact the ETH ecosystem?

Conversely, a pullback from the resistance bar could expose ETH toward the 20-day EMA (~$15,250) and the 50-day EMA ($1,500) waves.

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