ETH Derivatives Show Professional Traders Worried About Ethereum's $2.5K Support

Ether ( ETH ) investors are going through a tough time in 2022, with ETH racking up losses of 25% year-to-date to March 17. Still, the c...


Ether (ETH) investors are going through a tough time in 2022, with ETH racking up losses of 25% year-to-date to March 17. Still, the cryptocurrency has rebounded near $2,500 several times over the past two months, signaling a strong support level.

Ether/USD price on FTX. Source: Trading View

On March 15, Ethereum developer Tim Beiko announced that the Kiln testnet – formerly Ethereum 2.0successfully passed the “merger” of Ethereum. The process involves taking Ethereum’s runtime layer from the existing proof-of-work layer and merging it with the Beacon Chain’s consensus layer. The end goal is to turn the blockchain into a proof-of-stake network.

The US Federal Open Market Committee (FOMC) increase in interest rates to 0.50% on March 16 – the first such measure since 2018. The monetary authority warned of continued “upside pressure on inflation,” precisely the problem that digital cryptocurrency scarcity is targeting to solve.

Investors fear that further rate hikes by the FOMC will negatively impact risky markets. For example, a higher cost of borrowing reduces economic stimulus, creating a barrier to business expansion and consumer spending.

Regardless of its potential, Ether’s historic 80% volatility shifts the perception of most investors to view it as a risky asset that will inevitably succumb to any broader market correction.

Ether Futures Show Modest Sentiment Improvement

To understand how professional traders are positioned, it is worth looking at market data for Ether futures and options. First, the basic indicator measures the difference between longer term futures and current spot market levels.

The annualized Ether futures premium should be between 5% and 12% to compensate traders for “locking in” the money for two to three months until the contract expires. Levels below 5% are extremely bearish, while numbers above 12% indicate a bullish trend.

Annualized premium of 3-month Ether futures contracts. Source: Laevitas

The chart above shows that the basic indicator of Ether has risen from 2% on March 13 to 3.5% currently. However, such a level falls below the 5% threshold expected in neutral markets, signaling that professional traders are far from comfortable holding ETH futures.

Thus, it can be assessed that a possible break of the $3,200 resistance will catch these investors off guard, creating strong buying activity to cover the short positions.

Options Traders Fear ETH Could Drop Lower

Ether’s daily closing price has ranged from $2,500 to $3,000 over the past 27 days, making it difficult to discern a direction in the market. In this sense, the 25% delta skew is extremely useful, as it shows whether arbitrage desks and market makers are overcharging for upside or downside protection.

If these traders fear a crash in Ether price, the bias indicator will move above 10%. In contrast, generalized excitement reflects a negative bias of 10%. This is precisely why the metric is known as the “fear and greed” metric of professional traders.

Related: How Professional Ethereum Traders Place Bullish Bets on ETH Prices While Limiting Losses

Ether options 30 days 25% delta skew: Source: Laevitas

As noted above, the bias indicator has been above 10% since March 11, indicating fear as these options traders are overpricing to protect against the downsides.

Even though there has been a slight improvement in the Ether futures premium, the indicator remains at a bearish level. Given that ETH options markets are pricing in higher downside risk, it is safe to conclude that professional traders are not confident that the current $2,500 support will hold.

However, all is not lost for Ether bulls, as the premium of cheap futures offers the opportunity for low-cost long leverage. As long as the Ethereum network continues to move forward in resolving its scalability issue, there is always a chance that the $3,200 resistance could be revisited given the global macro uncertainty and inflation.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.



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Newsrust - US Top News: ETH Derivatives Show Professional Traders Worried About Ethereum's $2.5K Support
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