The Ether (ETH), price fell below $3,600 support Jan. 5, as minutes from December FOMC meeting revealed that the Federal Reserve was determined to decrease its balance sheet and increase interest rates in 2022.
Even with all that overhead, Ether still has its problems, namely the $40 per transaction fee and ongoing higher fees. Vitalik Buterin stated that Ethereum must be lighter in terms of blockchain data on Jan. 3. This will allow more people to use and manage it.
Vitalik’s interview focused on the status of Ethereum 2.0 upgrade. This is only half of what has been implemented in six years. The next roadmap phases are the “merge”, “surge” and then “full-sharding implementation”. According to Buterin, when they are implemented, they will result in an estimated 80% completion of the network upgrade.
Coinbase, USD. Ether price Source: TradingView
The current Ether price is appealing to those who have been following the cryptocurrency’s performance for the past three months. It is currently down 34% from its $48,870 all-time high. This shortsighted view overlooks the 560% Ether gained up to Nov. 10, 2021.
Additionally, Ether’s price peak has seen Ether’s adjusted total value locked (TVL), drop by 17%
Total value of Ethereum network, USD Source: DefiLlama
The network’s TVL fell from $166 billion down to $138 billion, as shown in the above graph. Terra and other smart contract networks such as Terra saw their TVL rise from $11 billion up to $18.7 million. Fantom increased the value of its smart contracts by $5 billion to $9B.
Professional traders are becoming increasingly anxious and frustrated due to delays in network upgrades, worsening macroeconomic circumstances, and a three-month-long price correction.
Futures of Ether are on the brink of becoming bearish
Because of their settlement date and price difference to spot markets, quarterly futures are often preferred instruments by whales and arbitrage desks. The contract’s greatest advantage is its lack of fluctuating funding rates.
Fixed-month contracts trade at a slightly higher premium than spot markets. This is because sellers are willing to pay more to hold settlements longer. Futures should be traded at a 5%- 15% annualized premium in healthy markets. This is technically called “contango”, but it is not only applicable to crypto markets.
Futures Ether: 3-month annualized premium Source: Laevitas
As shown above, Ether has seen its futures contract premium drop from 20% Oct. 21 to 5.5% on October 21, just slightly below the neutral market threshold. The basis indicator is still positive but it has fallen to its lowest level in six months.
A crash below $3,000 on January 10th was enough to stifle bullish sentiment. More importantly, some investors might have been scared off by the high fees and delayed upgrades of Ethereum.
Data currently shows that there is little evidence that bears are willing to take over the reins. The Ether futures premium could have gone negative if this were the case.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.