The Ether (ETH), price has fallen 50 percent since Nov. 10, when it reached a record high of $4,870. The lower trendline support suggests that altcoin could bottom at $3600 if this downtrend continues. However, the derivatives data indicates that pro traders don’t seem to be concerned about the market’s apparent bearish structure.
Price of Ether/USD on FTX. Source: TradingView
As investors flee the sector because of rising regulatory concerns, you can see how price peaks have fallen over the past 12 hours. Elvira Nabullina, Russia’s Central Bank governor stated in a press conference that it was possible to ban crypto currency from the country.
Nabiullina pointed out that crypto is often used for illegal operations, and poses significant risks to retail investors. Russian President Vladimir Putin recently criticised cryptocurrency, stating that they are not supported by anything. The country is planning to create its own digital currency central bank, despite the fact that the Russian ruble has lost 44% against the gold in the last four years.
A bipartisan group of U.S. senators have called upon Janet Yellen, Treasury Secretary, to clarify language in the infrastructure bill relating crypto tax reporting requirements. The current definition of “broker” means that miners, software developers and transaction validators, as well as node operators, will be required to report transactions in digital assets exceeding $10,000 to the Internal Revenue Service.
Traders should be aware of the futures premium, also known as “basis rate”, to determine how bullish or bearish professional trader are despite the uncertainty in regulatory and price action.
Pro traders remain neutral, despite price weakness
Basis indicators measure the difference between current spot market levels and longer-term futures contracts. In healthy markets, a 5% to 15% annualized bonus is expected. Sellers are able to demand more money in order to delay settlement.
A red alert is issued if this indicator turns negative or fades, also known “backwardation.”
Ether 3-month basis rate for futures. Source: Laevitas.ch
The annualized futures premium fell sharply after the Dec. 3 intraday crash at 24%. This was the result of the current 9% level. It has fallen to its lowest level in just two months. The Ether futures market recovered to its current level of 9% after the initial panic. This is near the middle of the neutral range.
Trader should analyze the options markets to confirm that this movement was unique to that instrument. The 25% delta skew is a comparison of similar call (buy) or put (sell) options. Because the protective put options premiums are higher than other risk options, the indicator will turn positive if “fear” is present.
Market makers who are bullish shift the 25% delta skew indicator to the negative zone. Readings between -8 and -8 are generally considered neutral.
Ether 30-day options 25% delta-skew Source: Laevitas.ch
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The 25% delta skew fluctuated between a positive 3 to 8 over the past three weeks. This is within the neutral zone. Options market data confirms the sentiment in futures markets, signaling that market makers and whales are not concerned about recent price weakness.
Investors can “zoom out” to see Ether’s year-to date gains at 300%. This explains why traders don’t worry about a 20% decline from the $48,870 all time high.
The Ethereum network’s total value in smart contracts has increased by more than 50% to $148 billion over the past six month. This data gives derivatives traders confidence to stay calm, even in the face of short-term price volatility.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.