Ether (ETH) price was down 9.8% from Feb 19-25 after price resistance at $1,725 proved stronger than expected. Even so, the correction was insufficient to break the 6-week-long ascending channel and did not cause the Ether derivatives metrics to turn bearish.
Ether’s price resilience can be partly explained by the operational failure of some of its smart contract blockchain competitors. For example, Solana (SOL) faced a 20-hour outage on February 25, which was only resolved after a network upgrade coordinated by validators. The network restart also involved purging some of the last few slots, though Solana’s developers said that “no confirmed user transactions were rolled back or impacted.”
On February 27, NEM (XEM) suffered a “chain outage” that lasted for 15 hours, causing several exchanges to halt deposits and withdrawals, with the developers promising to release an update to prevent further misbehavior. Interestingly, the last post from NEM’s official Twitter account, excluding a Christmas greeting, was a “Please Stand By” image posted in July 2022.
The regulatory environment remains murky for cryptocurrencies, with the latest victims being global payment processing companies Visa and Mastercard. According to a Reuters report published on Feb. 28, firms are delaying launching new partnerships with crypto firms until market conditions improve and a more transparent regulatory framework is put in place.
In more positive news, Ethereum’s Sepolia testnet successfully forked on February 28 in preparation for the Shanghai upgrade. The long-awaited mainnet upgrade, scheduled for March, should finally allow validators to withdraw their staked Ether from the Beacon Chain. The developers are preparing the Goerli testnet to enter a similar phase.
Let’s take a look at Ether derivatives data to understand whether the retest of $1,560 support on Feb. 25 has affected crypto investor sentiment.
ETH futures show higher demand for leveraged long contracts
The two-month futures annualized premium should trade between 5% and 10% in healthy markets to cover costs and associated risks. However, when the contract is trading at a discount (backwardation) compared to traditional spot markets, it shows a lack of confidence by traders and is considered a bearish indicator.
The chart above shows that derivatives traders turned slightly bullish when the Ether futures premium (on average) flirted with the 5% threshold on February 26. And more importantly, it shows resilience even as the Ether price dropped almost 10% between February 19-25.
Increased demand for leveraged (bullish) longs does not necessarily translate into an expectation of positive price action. Accordingly, traders should analyze the Ether options markets to understand how sellers and market makers are pricing the probabilities of future price movements.
Options Risk Metrics Show Resilience Despite 10% Price Drop
The 25% delta deviation 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 a price crash, pushing the bias indicator above 10%. On the other hand, bull markets tend to push the bias indicator below -10%, which means that bear put options are less in demand.
The delta slope flirted with the bearish 9% level on February 27, a sign of tension from professional traders. However, The situation improved on February 28, when the index stood at 5, indicating a similar upside and downside risk appetite.
It makes sense for fundamental analysts to avoid adding bullish positions ahead of the Shanghai update, especially since Ethereum developers have a history of delaying significant network changes.
Despite the number of worrisome factors, futures and options markets signal that professional traders are conservatively bullish and confident that the upward pattern will continue.. From a technical analysis standpoint, investors seem to believe that the uptrend will continue unless Ether breaks below the channel support at $1,520.
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