The 12-hour closing price of Ether (ETH) has spent twelve days respecting a narrow range between $1,910 and $2,150, but interestingly these swings of 13% have been enough to liquidate a total of $495 million in futures contracts since the May 13 according to data from Coinglass.
The worsening of market conditions was also reflected in digital asset investment products. According to the latest edition of CoinShare’s weekly report on digital asset fund flows, crypto investment funds and products saw an outflow of $141 million during the week ending May 20. In this case, Bitcoin (BTC) was the focus of investors’ attention after experiencing a weekly net return of $154.
Russian regulation and crumbling US tech stocks aggravate the situation
Regulatory uncertainty weighed on investor sentiment after an updated version of the proposed Russian mining law came to light on May 20. The document in the lower house of the Russian parliament no longer contained the obligation to register crypto mining operators and the one-year tax amnesty. As quoted by local media, the state legal department stated that these measures could “involve a cost to the federal budget.”
Additional pressure on the price of Ether came from the 2.5% drop in the Nasdaq Composite Index on May 24. Additionally, the gauge heavily driven by tech stocks came under pressure after social media platform Snap (SNAP) fell 40%, citing rising inflation, supply chain constraints and labor disruptions. Consequently, shares of Meta Platforms (FB) fell 10%.
On-chain data and derivatives are in favor of the bears
The number of active addresses in the decentralized applications (DApps) of the largest Ethereum network has fallen by 27% compared to the previous week.
The most active decentralized applications on the network suffered a substantial reduction in users. For example, Uniswap V3 weekly addresses were down 24%, while Curve faced 52% fewer users.
To understand how professional traders, whales, and market makers position themselves, let’s look at data from the Ether futures market.
Quarterly futures are used by sellers and arbitrage desks primarily due to their lack of a floating funding rate. These fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to defer settlement for longer.
These futures should trade at an annualized premium of between 5% and 12% in healthy markets. This situation is technically defined as “contango” and is not unique to the cryptocurrency markets.
The Ether futures contract premium dipped below the market-neutral 5% threshold on April 6. There is an obvious lack of conviction from leverage buyers as the current 3% basis indicator remains depressed.
Ether might have gained 2% after testing $1,910 channel resistance on May 24, but on-chain data shows a lack of user growth while derivatives data points to bearish sentiment.
Until there is a morale boost that drives the use of decentralized applications and the Ether futures premium returns to the neutral 5% level, the chances of the price breaking above the $2,150 resistance look low.
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