ETH futures markets are falling slightly, but options traders seem to be interpreting the rally to $3,200 as a bottoming signal.
Market analysis
Ether (ETH) has been an emotional rollercoaster over the past three months mainly due to its price doubling. It first peaked at $4,870 on November 10th and at $4,780 on December 1st. However, the double top was quickly rejected harshly leading to the liquidation of the long futures contract. $490 million in 48 hours.
Once again, hopes were ignited on December 8 after Ether started a 28.5% gain in 4 days to retest the $4,400 support. Soon after, the downtrend resumed, leading to a bottom of $2,900 on January 10, which was the lowest ETH price seen in 102 days. This low marks a 40% low from the all-time high of $4,870 and has traders questioning whether a bear market has been established.
One could argue that Ether is simply following Bitcoin’s 42% correction from its Nov. 10 all-time high at $69,000 and the most recent drop is partly attributed to due to potential tighter monetary policies by the US Federal Reserve and the impact of Kazakhstan’s political instability on mining.
This simple analysis leaves several important developments, such as China’s official digital yuan wallet becoming the most downloaded app in mobile app stores. local on January 10. Furthermore, a pilot version of the country’s central bank digital currency (CBDC) is being used in select cities and it is also available for download on app stores on January 4.
Even with fiscal policy pressure and price action negatively skewed, traders should keep an eye on the futures premium (fundamental rate) for bullish or bearish analysis. by professional traders.
Futures traders are becoming more nervous
The underlying indicator measures the difference between a long-term futures contract and the current spot market level. An annual premium of 5% to 15% is expected in sane markets. This price difference is because the seller requires more money to withhold payments for longer.
However, a red alert will appear whenever this indicator fades or turns negative, a situation known as a “step back”.
Notice how the indicator peaked at 20% on November 8 when Ether broke through $4,800, but then gradually disappeared to a low of 8% on December 5 after ETH flashed a drop to $3,480. More recently when Ether hit a low of $2,900 on January 10, the prime rate moved to 7%, which is a 132-day low.
As a result, professional Ether traders are not comfortable despite the 10% recovery to $3,200 on Jan.
Options traders have recently protested against neutrality
To rule out external factors specific to the futures instrument, one should also analyze the options markets. The 25% delta deviation compares call (buy) and put (sell) options similarly. The metric turns positive as fear prevails because the premium to protect puts is higher than that of similarly risky call options.
The opposite happens when greed is the prevailing mood causing the 25% delta deviation indicator to move into the negative zone.
As market makers and whales fall, the 25% delta deviation indicator moves into the positive zone, and indicators between 8% negative and 8% positive are generally considered neutral.
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Ether options traders entered “fear” mode on January 8 when the 25% delta deviation crossed the 8% threshold, peaking at 11% two days later. However, the quick bounce from the $2,900 low gave confidence to Ether options traders and also moved the “fear and greed” index of options down a meager 3%.
Currently, there is no consensus among Ether traders as the futures markets show mild discontent and the options arbitrage tables and whales have recently abandoned their bearish stance. surname. This makes sense since the current $3,200 price level is still reflecting a recent 15% weekly drop and is far from exciting.
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