The Ether price has been trading sideways for 27 days, but professional traders are not trusting the $2,500 support, based on derivatives.
Ether (ETH) investors are having a tough time in 2022 as ETH accumulates a 25% loss year-to-date as of March 17. Still, the cryptocurrency has bounced around $2,500 several times in recent months, indicating a solid support level.
On March 15, Ethereum developer Tim Beiko announced that the Kiln testnet, formerly Ethereum 2.0, successfully passed the Ethereum “merge”. The process involves taking the Ethereum execution layer from the existing proof-of-work (PoW) layer and merging it with the Beacon chain consensus layer. The ultimate goal is to turn the Blockchain into a proof-of-stake (PoS) network.
The US Federal Open Market Committee (FOMC) raised rates to 0.50% on March 16, the first such move since 2018. The monetary authority warned of persistent “upward pressure on inflation”, precisely the problem that the digital scarcity of cryptocurrencies aims to solve.
Investors fear that further rate hikes by the FOMC could have a negative impact on risk markets. For example, higher borrowing costs reduce economic stimulus, creating a drag on business expansion and consumer spending.
Regardless of its potential, Ether’s 80% historical volatility shifts the perception of most investors towards a risky asset that will inevitably succumb to an eventual broader market correction.
Ether Futures Show Modest Improvement in Sentiment
To understand how professional traders position themselves, one should look at data from the Ether futures and options market. First, the basis indicator measures the difference between longer-dated futures contracts and current cash market levels.
The Ethereum futures annualized premium should range from 5% to 12% to compensate traders for “locking in” money for two to three months until contract expiration. Levels below 5% are extremely bearish, while numbers above 12% indicate a bullish trend.
Based on analyzed data, the basic indicator of Ether recovered from 2% on March 13 to 3.5% today. However, that level falls below the 5% threshold expected in neutral markets, indicating that professional traders are far from comfortable holding long ETH futures.
Therefore, an eventual breakout of the $3,200 resistance will catch those investors off guard, creating strong buying activity to cover short positions.
Options Traders Fear ETH Could Drop Lower
Ether’s daily closing price has hovered between $2,500 and $3,000 for the past 27 days, making it difficult to discern a direction in the market. In that regard, the 25% delta bias is extremely useful as it shows whether arbitrage desks and market makers are overcharging for upside or downside protection.
If those traders fear an Ether price drop, the bias indicator will move above 10%. On the other hand, widespread enthusiasm reflects a negative bias of 10%. This is precisely why the metric is known as the fear and greed metric of professional traders.
According to the data, since March 11, the skew indicator has been above 10%, indicating fear that these options traders are overcharging for downside protection.
Although there was a modest improvement on Ether’s futures premium, the gauge remains bearish. Considering that ETH options markets price in more downside risk, it is safe to conclude that professional traders are not confident that the current $2,500 support will hold.
However, not everything is lost for Ether bulls as the cheap futures premium offers the opportunity to go long at a low cost. As long as the Ethereum network continues to make progress in fixing its scalability issue, it is still possible a revision of the $3,200 resistance, considering global macroeconomic uncertainty and inflation.
By Audy Castaneda
