Despite bouncing from a 45-day low on April 30, the price of Ether (ETH) remains stuck in a descending channel and the subsequent 9% gain over the last four days was enough for the altcoin to revisit the low. resistance at $2,870 of the descending channel pattern.
The Federal Reserve’s monetary policy continues to have a major influence on crypto prices and this week’s volatility is likely related to the FOMC comments. On May 4, the US Federal Reserve raised its benchmark interest rate by half a percentage point, the biggest hike in 22 years. Although it was a widely expected and unanimous decision, the monetary authority said it would reduce its $9 trillion asset base from June.
Chairman Jeremo Powell explained that the Federal Reserve is determined to restore price stability even if it means hurting the economy with lower business investment and lower household spending. Powell also downplayed the decline in gross domestic product during the first three months of 2022.
Although the price of Ether has corrected 14% in the last month, the total value locked (TVL) in the smart contract network increased by 7% in 30 days to reach 25.2 million Ether, according to data from DefiLlama. For this reason, it is worth exploring whether the price drop below $3,000 impacted the stance of derivatives traders.
ETH futures show traders remain bearish
To understand if the market has turned bearish, traders should look at the Ether futures contract premium, also known as the basis rate. Unlike a perpetual contract, these fixed-date futures do not have a funding rate, so their price will differ greatly from those seen on regular spot exchanges.
You can assess the position of the market by measuring the difference in charges between futures and the regular cash market.
To offset traders’ deposits until contract settlement, futures should trade at an annualized premium of 5% to 12% in healthy markets. However, as shown above, Ether’s annualized premium has been below that threshold since April 5.
Despite a slight improvement over the past 24 hours, the current base rate of 3.5% is generally seen as bearish as it indicates a lack of buyer demand for leverage.
Sentiment in options markets worsened
To exclude futures instrument-specific externalities, traders should look at the options markets as well. For example, the 25% delta slope compares similar call and put options.
This metric will turn positive when fear prevails because the premium for protective put options is higher than for similarly risky call options. The opposite occurs when greed prevails, causing the 25% slope indicator for options delta to shift into negative territory.
A 25% incline indicator range between -8% and +8% is generally considered a neutral zone. However, the metric has been above that threshold since April 16 and is currently at +14%.
Given that option traders pay higher premiums to protect themselves from dips, it can be concluded that sentiment has worsened in the last 30 days. Currently, the bearish sentiment in the market is growing.
Of course, none of this data can predict whether Ether will continue to honor the descending channel, which currently holds resistance at the $2,950 level. Still, given current derivatives data, there are reasons to believe that an eventual rally above $3,000 will likely be short-lived.
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