The price of Ether (ETH) dropped 10.2% between Jan 8-10 and has been trading in a range around the $1,500 level ever since. More importantly, on a broader timescale, Ether has fallen 52.5% in twelve months, which partly explains why derivatives performance was somewhat neutral after Ethereum’s failed attempt to break $1,700 on Feb. 8.
Investors are currently most concerned about U.S. Securities and Exchange Commission (SEC) lawsuits and enforcement actions against crypto firms, including the withdrawal of Kraken from its “as a service” program and PayPal. reportedly puts its stablecoin project on hold due to problems with regulators.
According to Jacob Blish, head of business development at Lido DAO, the SEC crackdown on cryptocurrency betting is expected to have unintended consequences for decentralized finance (DeFi). Blish has joined a growing number of people in the crypto industry calling for transparency in the regulation of the crypto sector.
On the other hand, Ethereum developers have announced the pre-launch of the Shanghai update on the Zhejiang testnet. According to a February 10 blog post, the transition is necessary to enable withdrawals from validator staking positions. The test network in Zhejiang is the first of three test networks that mimic Shanghai. It is expected to launch in March 2023, though no specific date has been given.
Let’s take a look at the Ethereum derivatives data to see if the $1,700 price drop has had an impact on crypto investor sentiment.
ETH futures show reduced demand for leveraged long positions
Retail traders generally avoid quarterly futures due to their price differential with the spot markets. Professional traders prefer these tools because they prevent fluctuations in funding rates in a perpetual futures contract.
The premium for a 3-month futures on an annual basis should be between 4% and 8% in healthy markets to cover the costs and associated risks. However, when futures are trading at a discount compared to regular spot markets, it is indicative of a lack of confidence on the part of leverage buyers, which is a bearish indicator.
The chart above shows that derivatives traders are more bearish as the Ether futures premium dipped below the 4% threshold. Hence, bears can rejoice that the indicator failed to show a modest premium even as ETH tested $1,700 on February 8th.
Lack of demand for long positions with leverage does not necessarily mean the expectation of unfavorable price movement. Therefore, traders should analyze the Ether options markets to understand how whales and market makers are evaluating the chances of future price movements.
Options key risk indicator flirted with bearish sentiment
A skewed delta of 25% is a telling sign that market makers and arbitrage firms are overpriced for up or down protection.
In a bear market, options investors give a higher chance of prices falling, causing the skew indicator to rise above 10%. On the other hand, bull markets tend to skew below -10%, which means that bearish put options are less in demand.
US lawmakers and experts discuss the role of the SEC in regulating cryptocurrencies
The delta skew flirted with the bearish 10% on February 14, signaling stress from professional traders. This contrasts sharply with late January, when the 25% asymmetry index hovered around 2%, pointing to similar upside and downside risks.
Ultimately, both the options and futures markets are indicating that professional traders are moving into neutral bearish sentiment, showing mild discomfort after the $1,700 price rejection.
Therefore, the odds are in favor of Ethereum bears because a hostile regulatory environment tends to amplify the adverse effects of FUD – whether or not it directly impacts the adoption and use cases of the Ethereum network.
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.
This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.
Credit : cointelegraph.com
