The local high of Ether (ETH), at $3,280, was reached on February 10, marking a 51.5% improvement from Jan. 24, when the price fell to $2,160. This price was the lowest it had been in six months and partially explains why the main sentiment gauge of derivatives traders plummeted into bearish territory.
The basis or annualized premium for Ether futures contracts was 2.5% on February 25, reflecting bearishness despite the 11% rise to $2,700. Investors are expressing doubts about the Ethereum network’s transition to a Proof-of-Stake (PoS), mechanism.
Cointelegraph reports that the eagerly awaited sharding upgrade, which will dramatically increase processing capacity, should be in effect by late 2022 or early 20,23.
A longer-term view of Ether’s performance is more appealing, as it currently stands at 45% below its $48,870 all-time peak.
In spite of the price correction, the Ethereum network’s adjusted value locked (TVL), has remained at 42.8 million Ethereum.
Total value of Ethereum network, in ETH Source: DefiLlama
The network’s TVL increased 16.5% in three month, as shown in the above graph. This is due to growth from nonfungible token markets (NFT), and decentralized finance (DeFi).
Professional traders are feeling frustrated and anxious due to delays in network upgrades and worsening macro conditions. This sentiment is reflected in several derivatives metrics.
Futures on Ether hit their lowest level in seven years.
Due to the fixed settlement date and price differential from spot markets, retail traders tend not to trade quarterly futures. The greatest advantage of the contracts is their lack of fluctuating funding rates, which is why professional traders and arbitrage desks are so common.
Fixed-month contracts trade at a slightly higher premium than spot markets, because sellers are asking for more money to hold settlement longer. This is technically known as “contango”, and it is not only for crypto markets.
Futures Ether: 3-month annualized premium Source: Laevitas
In healthy markets, futures should trade at a premium of 5%-15% annually. As you can see, Ether’s annualized Premium has fallen from 20% to 2.5% on Oct. 21.
The basis indicator is still positive but it has fallen to its lowest level in seven years. Bearish sentiment prevailed after the February 24 crash to $2300. Not even February 25’s 10% recovery was enough for it to turn the tables.
Data shows that there are no signs that bulls want to regain control. If that were true, Ether futures premiums would have been positive following a rally like this.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.