Ether (ETH) has been an emotional rollercoaster over the past three months, mainly because its price has risen twice. It first reached $4,870 on November 10 and $4,780 on December 1. However, the double top was followed by a harsh rejection that led to $490 million in long futures contract liquidations in 48 hours.
Once again, hope was raised on December 8, when Ether began a 28.5% rally to retest the $4,400 support in 4 days. Shortly thereafter, the downtrend continued, reaching a January 10 low of $2,900, the lowest ETH price in 102 days. This low is 40% below the all-time high of $4,870 and has traders questioning whether a bear market has been established.
One could argue that ether is following bitcoin’s 42% correction from November 10 to an all-time high of $69,000 and the most recent pullback is partly due to the potentially tighter monetary policies of the United States Federal Reserve and mining. But has been attributed to the effects of the political turmoil in Kazakhstan.
This simplified analysis leaves behind some important developments, such as China’s official digital yuan wallet becoming the most downloaded app in the local mobile app store on January 10. In addition, a pilot version of the country’s central bank digital currency (CBDC) is being used. It also became available for download in select cities and on the App Store on January 4.
Even with fiscal policy pressures and negatively skewed price action, traders should still monitor futures contract premiums (the base rate) to analyze how bullish or bearish a professional trader is. Huh.
The restlessness of futures traders is increasing
The Base Indicator measures the difference between long-term futures contracts and current spot market levels. Expect 5% to 15% annual premiums in healthy markets. This price difference is caused by sellers demanding more money to prevent settlement for a longer period of time.
However, whenever this indicator fades or turns negative, a red alert appears, which is known as “backwardation”.
Notice how the indicator jumped 20% on November 8 as Ether crossed $4,800, but then slowly dropped to a low of 8% on December 5, when ETH flashed to $3,480. As Ether recently touched a low of $2,900 on January 10, the base rate dropped to 7%, its lowest level in 132 days.
As a result, professional Ether traders are not comfortable despite a 10% recovery to $3,200 on January 11.
Options traders have turned neutral lately
To exclude specific externalities for a futures instrument, one must also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. When fear prevails the metric will turn positive because the protective put option premium is higher than that of similar risk call options.
The opposite occurs when greed is the prevailing mood which causes the 25% delta skew indicator to move into negative territory.
When market makers and whales are bearish, the 25% delta skew indicator tends to move into positive territory, and a reading between negative 8% and positive 8% is generally considered neutral.
related: Joe Rogan, the world’s biggest podcaster, holds ‘a lot of hope’ for crypto
Ether options traders entered “fear” mode on January 8 as the 25% delta skew crossed the 8% threshold, reaching 11% two days later. However, a quick bounce from the $2,900 low has instilled confidence in Ether options traders and pushed the options “fear and greed” metric up 3%.
At the moment, there is no consensus among ether traders as the futures market shows little dissatisfaction and the options arbitrage desk and whales have recently given up their bearish stance. This is understandable as the current $3,200 price is still reflecting the recent 15% weekly decline and is far from exciting.
The views and opinions expressed here are solely those of Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.
