Ether (ETH) has been an emotional roller coaster for the past three months, mainly because its price has rallied twice. It first hit a high of $ 4,870 on November 10 and $ 4,780 on December 1. However, the double top was quickly followed by a harsh rejection that led to settlements of long futures contracts worth $ 490 million in 48 hours.
Once again, hope was instilled on December 8 after Ether started to rise 28.5% in 4 days to retest the support at $ 4,400. Soon after, the downtrend continued, leading to the low of $ 2,900 on Jan.10, which was the lowest ETH price seen in 102 days. This low marked a 40% decline from the all-time high of $ 4,870 and caused traders to wonder if a bear market had been established.
It could be argued that Ether is simply following Bitcoin’s 42% correction from the November 10 all-time high at $ 69,000 and that the most recent pullback has been partly attributed to possible tighter monetary policies of the US Federal Reserve and the impact of Kazakhstan’s political turmoil on mining.
This simplistic analysis leaves out some crucial developments, such as the fact that China’s official yuan digital wallet became the most downloaded app in local mobile app stores on January 10. Additionally, a pilot version of the nation’s central bank digital currency (CBDC) is being used in select cities and was also available for download in app stores on January 4.
Even with fiscal policy pressure and negatively skewed price action, Traders should continue to monitor the premium of futures contracts (base rate) to analyze how bullish or bearish professional traders are.
Futures traders are more restless
The baseline indicator measures the difference between long-term futures contracts and current spot market levels. In healthy markets an annualized premium of 5% to 15% is expected. This price difference is due to sellers demanding more money to hold the sale for longer.
However, a red alert arises whenever this indicator fades or turns negative, a scenario known as “backwardation”.
Notice how the indicator peaked at 20% on November 8 when Ether broke above $ 4,800, but then gradually faded to a low of 8% on December 5 after ETH plunged to $ 3,480. More recently, when Ether touched a low of $ 2,900 on January 10, the base index moved to 7%, which is its lowest level in 132 days.
Consequently, professional Ether traders are uncomfortable despite the 10% rally to $ 3,200 on January 11.
Options traders recently turned neutral
To exclude the externalities inherent to the futures instrument, options markets must also be analyzed. The 25% slope of the delta compares similar call and put options. The metric will be positive when fear prevails, because the protection premium for put options is higher than that for call options of similar risk.
The opposite occurs when greed is the predominant mood, causing the 25% delta steepness indicator to shift into the negative zone.
When market makers and whales are bearish, the 25% delta tilt indicator it drifts into the positive zone, and readings between -8% and + 8% are generally considered neutral.
Ether options traders entered “fear” mode on January 8, when the 25% delta tilt passed the + 8% threshold, peaking at + 11% two days later. However, the rapid rebound from the $ 2,900 low instilled confidence in Ether options traders and also moved the options ‘fear and greed’ metric to a meager + 3%.
At the moment, there is no consensus sentiment from Ether traders as futures markets indicate slight discontent and options arbitrage tables and whales have recently abandoned their bearish stance. This makes sense because the current price of $ 3,200 still reflects 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.com. Every investment and business move involves risk, you should do your own research when making a decision.
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