Ethereum derivatives data shows pro traders are bearish, but for how long?

After a 16% weekly decline, Ether (ETH), lost the $3,000 psychological support level. Bulls were clearly taken by surprise when $104 million worth of leveraged long futures was liquidated Monday. The Ether downturn was also accompanied by a decrease in total value locked (TVL), in Ethereum smart contracts.

Ethereum network TVL in ETH. Source: Defi Llama

On Jan. 27, the metric reached its peak at 40.6 million Ether, and has dropped 22% since then. This indicator could partly explain why Ether couldn’t withstand Bitcoin’s (13% weekly negative) move.

The leading altcoin, however, has its own catalysts. On April 11, Ethereum developers launched the first ever “shadow fork”. Developers can stress-test their assumptions about the network’s complicated shift to proof of stake with the testnet update.

It is important to assess how professional traders position themselves. The best gauge of this is the derivatives market.

The futures premium has returned to bearish levels

The premium Ether offers on futures contracts, also called a “basis”, can be used to determine if the current bearish trend is reflected top traders’ sentiment. These fixed-calendar options do not have funding rates, which means that their prices will be different from regular spot exchanges.

The expense gap between the regular spot and futures markets can be used by traders to gauge market sentiment. As sellers demand more money to delay settlement, a neutral market should have a 5%-12% annualized premium (basis).

Premium Ether 3-month Futures. Source:

The chart above shows that Ether’s futures premium was above the neutral threshold of 5% between March 25-April 6, but then declined to 3%. This level is often associated with fear and pessimism, as futures market traders are reluctant open leveraged long (buy), positions.

Evidence of worsening conditions is evident in long-to-short-term data

Externalities that could have had an impact on the longer-term futures instruments may not be included in the long-to-short net ratio of top traders. Analyzing these whale positions on spot, perpetual, and futures contracts can help you understand if professionals are effectively becoming bearish.

Top traders in exchanges Ether long-to–short ratio Source: Coinglass

First, it is important to note that different exchanges have different methodological differences. Therefore, absolute figures are less significant. However, every major derivatives exchange has seen a significant decline in their long-to-short ratio since April 5.

Data indicates that whales have been increasing bearish bets in the last week. On April 5, Binance whales had a 1.05 long to short ratio, but it has been gradually decreased to 0.88. The OKX top traders also moved from a 2.11 favoring longs ratio to the current 1.35.

Related: Kava becomes bullish after Ethereum Co-Chain launches push towards EVM compatibility

Are investors and users leaving the network?

The metrics mentioned above might not indicate extreme bearishness, but the futures base rate and top traders’ long/short ratio have both declined over the past week.

The TVL in Ethereum smart contract signals a decrease in usage. Investors could lose focus due to the delays in proof-of-stake transfer. This could drive decentralized finance (DeFi), gaming and non-fungible (NFT), projects to other networks. This has led traders to focus their attention on other promising altcoins, which in turn has decreased Ether’s demand.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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