Ether (ETH) lost the critical psychological support level of $3,000 on April 11 after a weekly negative return of 16%. The bulls were definitely caught off guard when $104 million in leveraged long futures were liquidated on Monday. The Ether downturn also followed a decline in total value locked (TVL) in Ethereum smart contracts.
The metric peaked at 40.6 million Ether on January 27 and has since dropped 22%. This indicator could partially explain why Ether was unable to withstand the adversity brought by Bitcoin’s (BTC) negative 13% weekly move.
However, the leading altcoin has its own catalysts because Ethereum developers implemented the network’s first “shadow fork” on April 11. The testnet update created an area for developers to test their assumptions about the network’s complex switch to proof-of-stake.
More importantly, it is necessary to analyze how professional traders position themselves and there is no better indicator than the derivatives markets.
To understand if the current downtrend reflects the sentiment of major traders, one must look at the Ether futures contract premium, also known as “basis.” Unlike a perpetual contract, these fixed-calendar futures do not have a funding fee, so their price will differ greatly from regular spot exchanges.
A trader can gauge market sentiment by measuring the expense gap between futures and the regular spot market. A neutral market should present an annualized (base) premium of 5% to 12%, as sellers ask for more money to hold the settlement longer.
The chart above shows that the Ether futures premium remained above the 5% neutral threshold between March 25 and April 6, but then weakened to 3%. This level is often associated with fear or pessimism because futures market traders are reluctant to open long (buy) leveraged positions.
Data on the ratio of long and short positions confirms worsening conditions
The ratio of long to short positions held by professional traders excludes externalities that might have affected longer-dated futures instruments. By analyzing these whale positions in spot, perpetual and futures contracts, you can better understand whether the professionals are effectively leaning lower or higher.
First of all, it is worth noting the methodological discrepancies between the different exchanges, so the absolute figures are less important. However, since April 5, there has been a considerable decline in the ratio of long to short positions across all major derivatives exchanges.
The data indicates that the whales have been increasing their bearish bets over the past week. For example, Binance Whales maintained a ratio of 1.05 on April 5, but gradually lowered it to 0.88. Also, the major OKX traders moved from 2.11 in favor of the longs to the current 1.35.
Are investors and users leaving the network?
From the perspective of the metrics discussed above, there may not be one indicator that points to an extreme downtrend, but the futures base rate and the ratio of professional traders long to short have worsened over the past week.
Additionally, the TVL on Ethereum smart contracts indicates a decline in usage. Ongoing delays in migrating to proof-of-stake could be diverting investor attention and driving decentralized finance (DeFi), gaming, and non-fungible token (NFT) projects to competing networks. In turn, traders have turned their attention to more promising altcoins and consequently have decreased the demand for Ether.
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