Home Crypto Ethereum derivatives flirting with bearishness: Mind the $1,820 support

Ethereum derivatives flirting with bearishness: Mind the $1,820 support

by CryptoFan
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After slightly above $2,000 on May 6, the Ether price has returned to a tight range between $1,820 and $1,950. This has been the norm for the last 3 weeks.

Latest Ether (ETH) Futures and Options Data Shows Odds Drop Ether Price Below $1,820 Support As Professional Traders Reluctant to Add Neutral to Bullish Positions Using Derivatives Contracts I support that.

Ether price in USD, 12 hour chart. Source: TradingView

Even the memecoin craze that boosted demand for the Ethereum network failed to instill confidence in investors. Data from BitInfoCharts show that the average transaction fee on Ethereum soared to $27.70 on May 6, the highest level in 12 months. As Cointelegraph reported, one of the main drivers of the increase was the insatiable demand for Pepe (PEPE), among other memecoins.

Additionally, gas price hikes have pushed users toward layer 2 solutions, which could be interpreted as a weakness. For example, removing deposits from the Ethereum chain reduces the total locked value, especially in decentralized financial applications.

Some analysts believe that the $30 million sale of Ether by the Ethereum Foundation was the reason Ethereum failed to break above $2,000. The last related transfer by the Foundation took place in November 2021, with the price exceeding approximately $4,850 and an 80% drop since then.

On the macroeconomic side, the 4.9% US consumer price index (CPI) for April, released on May 10, was slightly below consensus, with the next Federal Reserve meeting in June. further raised investor expectations for stable interest rates in CME Group’s fedwatch tools It showed 94% stability odds in the current 5% to 5.25% range.

Demand for risk-on assets such as cryptocurrencies should therefore continue to be weighed down by the lack of signs of a change in Fed policy. But if investors fear that Ether is likely to break its 3-week flat move to the downside, it should be reflected in the increased cost of Ethereum futures contract premiums and protective put options.

Ether Futures Reflect Weak Long Demand

Ether quarter futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a small premium to the spot market, indicating that sellers are demanding more money to delay settlement.

As a result, ETH futures contracts in a healthy market should trade at a premium of 5% to 10% per annum. This is a situation known as contango, which is not unique to the crypto market.

Annualized premium for 3-month Ether futures.Source: Laevitas

Ether traders have been very cautious this past week as demand for leveraged longs did not surge during the May 6 rally above $2,000. Her ETH futures premium, currently at 1.4%, reflects a complete lack of appetite from buyers using derivative contracts. .

Ether Options Risk Indicator Remains Neutral

Traders should also analyze options markets to understand whether the recent correction has made investors more optimistic. A 25% delta skew for calls and puts is a sign that arbitrage desks and market makers are overcharging to protect higher or lower prices.

In short, if a trader expects the Ether price to fall, the skew indicator will be below 7%, and the 7% skew tends to be positive during the excitement stage.

Related: Arbitrum’s DAO will receive over 3,350 ETH in earnings from transaction fees

Delta Skew for Ether 30-day options is 25%.Source: Amberdata and The Block

As shown above, the 25% call-to-put delta skew for Ethereum options has been neutral for the past two weeks. This is because protective put options traded at a fair price compared to similar neutral to bullish call options.

Ether options and futures markets suggest professional traders are not feeling confident, especially considering the 10.6% gain from May 2-6. Therefore, weak derivatives indicators are more likely to turn bearish if the 3-week flat move turns to the downside.

In other words, if the price of Ether breaks below $1,820, traders should expect higher appetite for bearish bets using ETH derivatives, which is an indicator of distrust and lack of long demand.

This article is for general informational purposes and is not intended, nor should it be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent the views or opinions of Cointelegraph.

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