Ether (ETH) was up 5.5% in the early hours of November 29, recapturing the critical support of $1,200. However, when looking at a broader time period, the negative return of 24% in the last 30 days significantly affects investor sentiment. Furthermore, investor sentiment worsened after BlockFi filed for bankruptcy on November 28.
The news flow remained negative after the United States Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with exchange Kraken for “apparent sanctions violations against Iran.” In a Nov. 28 announcement, OFAC said Kraken had agreed to pay more than $362,000 as part of a settlement “to resolve potential civil liability for him.”
Additionally, on Nov. 28, institutional crypto financial services provider Silvergate Capital denied rumors of significant bankruptcy exposure to BlockFi. Silvergate added that its losses are less than $20 million worth of digital assets and reiterated that BlockFi was not the custodian of its crypto-collateralized loans.
Traders fear that Ether could fall below $800 if the bear market continues, but some also question the risk of invalidation. An example comes from Twitter cryptocurrency trader @CryptoCapo_:
I have spent hundreds of hours analyzing the market to come to the conclusion that:
Capitulation is a matter of time. USDBTC should reach 12ks, USDETH 600-700, altcoins should drop 40-50% and shitcoins 50%+.
I won’t post any more here until confirmation or invalidation.
Good luck!
— The Capo Of Crypto (@CryptoCapo_) November 28, 2022
Let’s look at Ether derivatives data to understand if worsening market conditions have affected crypto investor sentiment.
Professional traders are slowly breaking out of panic levels
Retail traders often avoid quarterly futures due to the difference in prices from the spot markets. They are the instruments of choice for professional traders because they avoid the fluctuation in funding rates that often occurs in a perpetual futures contract.
Two-month futures annualized premium should trade between +4% and +8% in healthy markets to cover costs and associated risks. Therefore, when futures are trading at a discount compared to regular spot markets, it shows a lack of confidence on the part of leveraged buyers, a bearish indicator.
The chart above shows that derivatives traders remain bearish as the Ether futures premium is negative. However, it has at least shown a modest improvement on November 29. The bears may highlight how far we are from a 0% to 4% neutral to bullish premium, but the consequences of a 71% drop in one year weigh heavily. .
Still, traders should also analyze Ether options markets to exclude futures instrument-specific externalities.
Options traders do not expect a sudden rally
The 25% slope of the options delta is a telltale sign when market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, option investors give higher odds of a price dump, pushing the bias indicator to above +10%. On the other hand, bull markets tend to drive the delta indicator below -10%, which means bear put options are discounted.
The slope of the delta eased last week, indicating that options traders are more comfortable offering downside protection.
With the delta slope for 60-day options sitting at +18%, whales and market makers are pricing in higher chances for Ether price declines. Consequently, both the options and futures markets point to professional traders fearing that a retest of the $1,070 low is the natural course for ETH.
From an optimistic perspective, data from on-chain analytics firm Glassnode shows that the November 2022 sell-off was the fourth largest for Bitcoin (BTC). The move has led to a 7-day realized loss of $10.2 billion.
Consequently, the capitulation of Ether holders has most likely passed and those making bullish bets right now, challenging ETH derivatives metrics, will ultimately come out on top.
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