As a seasoned researcher with years spent navigating the tumultuous waters of the cryptosphere, I can’t help but feel a sense of deja vu as I watch Ether (ETH) grapple with resistance at the $4,050 level yet again. Having witnessed countless bull runs and corrections, I’ve learned to read between the lines and spot trends that may not be immediately apparent to the untrained eye.
On December 9th, Ether (ETH) dipped back towards $3,800 following its inability to surpass $4,050 – a resistance point that’s held strong since late 2021. This 5% price drop has sparked worries among investors about the longevity of the bull market, given Bitcoin (BTC) is currently close to $100,000.
Investor unease is partly fueled by record-high inflows into Ether exchange-traded funds (ETFs), which failed to translate into a breach of the multi-year resistance level. Despite this, Ether futures data suggests that professional traders remain unfazed, showing no signs of anticipating further corrections.
Currently, the yearly return on Ether futures is at 17%, which remains constant from last week and is notably higher than the 10% benchmark. This high premium could suggest a growing interest in taking on ETH borrowing to amplify positions, possibly stemming from arbitrage possibilities in perpetual contracts or inverse swaps.
Monthly futures for ETH are often shied away from by retail traders because the prices of these contracts can differ significantly from the current spot market, mainly due to their longer settlement periods. This discrepancy can result in increased demand for high leverage—a trend that shows up in funding rates for perpetual contracts. Since large traders (whales) and market makers pay close attention to potential arbitrage opportunities, they can influence the pricing of monthly futures based on these funding rate trends.
The funding rate for Ether perpetual futures currently reflects a 2.7% monthly premium, slightly above the 2.1% neutral threshold. Notably, this metric peaked at 5.4% on Dec. 5, potentially contributing to the increased appetite for leveraged positions in monthly ETH contracts.
ETF inflows and Ethereum activity boost bullish derivatives demand
Other reasons contributing to the increased demand for ETH long positions in derivative markets are the significant inflow of $1.17 billion into Ethereum spot ETFs since November 29, and the surge in on-chain activity on the Ethereum network by 24%, which has helped alleviate worries about the current average transaction fee of around $7.50.
In a recent period, the Solana network retained its dominance in terms of decentralized application (DApp) volumes. However, Ethereum made substantial progress, amassing approximately $24.2 billion in seven days, which is closing the gap significantly. When accounting for Ethereum’s layer-2 scaling solutions like Base, Arbitrum, Polygon, and Optimism, the aggregate volume reaches an impressive $48.6 billion—representing a 65% increase over Solana’s $29.5 billion.
To determine if experienced Ethereum investors expect additional price drops, it’s important to examine the Ethereum options skew as well. In downward market trends, traders often ask for higher prices for put options (which allow you to sell Ethereum at a later date), pushing the 25% delta skew over 6%. This means that the demand for put options is significantly greater than call options (which allow you to buy Ethereum at a later date).
The Ether options market has exhibited less bullishness recently; the skew has changed from -7% on December 6 to -2%. This indicates a more neutral outlook, despite Ethereum experiencing a 5% drop in price and repeatedly failing to surpass $4,050. Remarkably, the options market has shown strength, as it hasn’t leaned heavily toward bearishness, with the skew staying below the 6% threshold that would suggest increased pessimism.
It seems that Ether’s price drop is primarily due to broader economic issues rather than crypto-centric matters. The drop in investor confidence might be a result of Nvidia’s (NVDA) shares falling after the announcement of an antitrust investigation, combined with China’s inflation rate decreasing by 0.6% in November compared to the previous month.
It’s possible that concerns about a slowdown in the world economy might have contributed to the recent drop in Ethereum prices. Yet, despite this, there seems to be a positive outlook among traders, which can be seen through signals in the derivatives market.
This piece is primarily meant to provide useful insights rather than offering legal or financial guidance. The perspectives, ideas, and opinions shared in this article belong solely to the writer and may not align with the views and beliefs of CryptoMoon as a whole.
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2024-12-10 00:12