Even with the bounce back to $2,800 on February 25, the price of ETH has lost 30% in two weeks, and derivatives data reveals pro traders are negative.
Ether (ETH) hit a local high of $3,280 on Feb. 10, up 51.5 percent from the cycle low of $2,160 on Jan. 24. That price was the lowest in six months, and it explains why the major attitude indicator for derivatives traders fell to gloomy levels.
Despite an 11 percent gain to $2,700, Ether’s futures contract annualized premium, or basis, reached 2.5 percent on Feb. 25, indicating bearishness. Investors’ concerns about the Ethereum network’s switch to a proof-of-stake (PoS) mechanism are reflected in the deteriorating conditions.
The long-awaited sharding upgrade, which would greatly increase processing capacity, is expected to become live in late 2022 or early 2023.
When looking at Ether’s performance over a longer period of time, it becomes more tempting, since the cryptocurrency is currently 45 percent below its all-time high of $4,870.
Moreover, despite the price drop, the Ethereum network’s adjusted total value locked (TVL) has remained stable at 42.8 million ETH.
The network’s TVL climbed by 16.5 percent in three months, owing to growth in the decentralized finance (DeFi) and nonfungible token (NFT) marketplaces, as seen above.
Professional traders, on the other hand, are becoming agitated and apprehensive as a result of network upgrade delays and worsening global macro conditions, as seen by several derivatives measures.
The most negative level in seven months was reached by ether futures.
Due to their fixed settlement date and price disparity from spot markets, retail traders typically avoid quarterly futures. The lack of a variable funding rate, however, is the contracts’ largest advantage, which is why arbitrage desks and professional traders are so common.
Because sellers are demanding more money to delay settlement longer, these fixed-month contracts normally trade at a modest premium to spot markets. This is referred to as “contango” in technical terms, and it is not unique to crypto markets.
In healthy markets, futures should trade at a 5–15 percent annualized premium. However, as shown above, Ether’s annualized premium has dropped from 20% on Oct. 21 to a pitiful 2.5 percent.
The base indicator is still positive, but it has dropped to its lowest level in seven months. Bearish attitude prevailed after the February 24 drop below $2,300, and even the 10% recovery on February 25 was not enough to turn the tide.
There are currently few signals that bulls are ready to reclaim dominance, according to research. If this were the true, following such a gain, the Ether futures premium would have become positive.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.