Ether (ETH) has been an emotional rollercoaster over the past three months primarily because its price rallied twice. First, it peaked at $4,870 on Nov. 10 and at $4,780 on Dec. 1. However, the double top was quickly followed by a harsh rejection, which led to $490 million in long futures contract liquidations in 48 hours.
Once again, hope was instilled on Dec. 8 after Ether commenced to rally 28.5% in four days to retest the $4,400 support. Soon after, the downtrend continued, leing to the $2,900 bottom on Jan. 10, which was the lowest ETH price seen in 102 days. This low marked a 40% low from the $4,870 all-time high and caused trers to question whether a bear market h been set.
Ether/USD price at FTX. Source: TringView
One might argue that Ether is simply following Bitcoin’s 42% correction from the Nov. 10 all-time high at $69,000 and the most recent pullback has partially been attributed to the United States Federal Reserve’s potential tighter monetary policies and Kazakhstan’s political turmoil impact on mining.
This simplistic analysis leaves behind some crucial developments, such as China’s official digital yuan wallet becoming the most downloed app in local mobile app stores on Jan. 10. Furthermore, a pilot version of the nation’s central bank digital currency (CBDC) is being used in select cities and it also became available for downlo on app stores on Jan. 4.
Even with the fiscal policy pressure and negatively skewed price action, trers should still monitor the futures contracts premium (basis rate) to analyze how bullish or bearish professional trers are.
Futures trers are becoming more anxious
The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets. This price gap is caused by sellers demanding more money to withhold settlement longer.
However, a red alert emerges whenever this indicator fes or turns negative, a scenario known as “backwardation.”
Ether 3-month futures basis rate. Source: Laevitas.ch
Notice how the indicator peaked at 20% on Nov. 8 as Ether surpassed $4,800, but then grually fed away to an 8% low on Dec. 5 after ETH flash crashed to $3,480. More recently as Ether touched a $2,900 low on Jan. 10, the basis rate moved to 7%, which is its lowest level in 132 days.
Consequently, professional Ether trers are not comfortable despite the 10% recovery to $3,200 on Jan. 11.
Options trers recently flipped neutral
To exclude externalities specific to the futures instrument, one should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.
The opposite holds when greed is the prevalent mood causing the 25% delta skew indicator to shift to the negative area.
Ether 30-day options 25% delta skew. Source: TringView
When market makers and whales are bearish, the 25% delta skew indicator shifts to the positive area, and reings between negative 8% and positive 8% are usually deemed neutral.
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Ether option trers entered “fear” mode on Jan. 8 as the 25% delta skew surpassed the 8% threshold, peaking at 11% two days later. However, the quick bounce from the $2,900 low instilled confidence in Ether options trers and also moved the options “fear and greed” metric to a meager 3%.
At the moment, there is not a consensus sentiment-wise from Ether trers because futures markets indicate slight discontent and options arbitrage desks and whales have recently abandoned their bearish stance. This makes sense because the current $3,200 price is still reflecting the recent 15% weekly drop and is far from exciting.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and tring move involves risk. You should conduct your own research when making a decision.
META ARTICLE: Ethereum futures and options data reflects trers’ mixed emotions on $3.2K ETH price PUBLISHED: 2022-01-11 19:15:00 SOURCE: https://cointelegraph.com/news/ethereum-futures-and-options-data-reflects-trers-mixed-emotions-on-3-2k-eth-price