Ether (ETH) has been oscillating near $1,200 since Dec. 17, but an uptrend has been quietly gaining strength after 50 consecutive days.
The pattern points to $1,330 or higher in March 2023, so it is essential for bulls to defend the current support of $1,180.
The eagerly awaited migration to Proof of Stake in September 2022 paved the way for further integration of Layer 2 solutions and lower transaction costs overall. Layer 2 technologies like Optimistic Rollups have the potential to improve Ethereum’s scalability by 100x and provide off-chain network storage.
The developers anticipate that network upgrades planned for 2023, which introduce large portable data packets, could increase rollup capacity by up to 100 times. Furthermore, in December 2021, Vitalik Buterin shared that the endgame was for Ethereum to act as the base layer, with users “store their assets in a ZK-rollup (zero knowledge) running a full Ethereum virtual machine.”
An unexpected move negatively affecting competing smart contract chain platform Solana (SOL) has likely contributed to fueling investor expectations in Ethereum.
Two notable non-fungible token projects announced an optional migration to the Ethereum and Polygon chains on Dec. 25, namely eGods and y00ts. The transition will also bridge the DUST token – used to buy, sell and mint NFTs in the DeGods ecosystem – through Ethereum and Polygon.
Still, investors believe Ether could return to sub-$1,000 levels as the US Federal Reserve continues to raise interest rates and drain market liquidity. For example, Crypto trader and investor Tony expects the next two months to be extremely bearish for ETH:
I am 90% confident in another drop down to below $1,000 and remain in my short from the range high while below $1,280
Now the path we take to get to sub $1,000 can take a few approaches, including a pump first. So be prepared and use strict risk management pic.twitter.com/Rc1nVQG5Ql
— Crypto Tony (@CryptoTony__) December 29, 2022
Let’s take a look at the Ether derivatives data to understand if the bearish macro scenario has influenced investor sentiment.
Bearish betting excessive demand using ETH futures
Retail traders often avoid quarterly futures because of their price difference to spot markets. Meanwhile, professional traders prefer these instruments because they avoid the fluctuation of funding rates 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. When futures are trading at a discount to regular spot markets, it shows a lack of confidence from leveraged buyers, which is a bearish indicator.
The chart above shows that derivatives traders continue to demand more leverage for short (bearish) positions, as the Ether futures premium remains negative. However, the lack of buyer appetite for leverage does not necessarily mean that a price decline is guaranteed.
For this reason, traders should study the Ether options markets to understand whether investors are pricing in higher odds for unexpected and adverse price moves.
Ethereum Options Traders Remain Risk Averse
The delta’s 25% slope is a telltale sign that market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, option investors are more likely to see prices fall, driving the bias indicator to rise above +10%. On the other hand, bull markets tend to push the delta indicator below -10%, which means bear put options are discounted.
The delta’s slope peaked on December 24, indicating moderate fear, as protective puts traded at a 22% premium. However, the move gradually faded to the current level of 17%, indicating that options traders remain uncomfortable with downside risks.
The 60-day delta bias confirms that whales and market makers are not confident that the $1,180 support will hold.
In short, both the options and futures markets suggest that investors are ready for prices below $1,000. As long as the US Federal Reserve maintains its tight economic policies, bears are likely to successfully suppress future Ethereum price rallies.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.