Ether (ETH) lost $ 1,750 in support on March 22nd, a 7% loss and futures settlement of $ 230 million. It has held near the strong support at $ 1,670, although investors are unwilling to open new long positions even though the price is 11% below the previous week’s high.
Binance Chain recently surpassed Ethereum’s transaction volume, and this surprising growth in unique active wallets has certainly helped manipulate investor optimism. The madness of non-fungible tokens (NFT) has kept new projects off the high fees of the Ethereum network.
To further complicate matters, several decentralized financial protocols (DeFi) are looking for interoperable alternatives, and PancakeSwap, the leading Binance smart chain app, was valued at $ 4.46 billion (TVL).
In the meantime, the developers of Ethereum are trying to fix the Berlin upgrade situation in order to reduce transaction costs. The update is expected to be released on April 14th. However, some industry leaders, including Enjin CEO Maxim Blagov, don’t expect a material impact on the cost per transaction.
Let’s look at some derivative indicators to see why investor expectations for ether have been lowered lately.
The futures premium remains optimistic
The basis is often referred to as the futures premium and measures the gap between longer-term futures contracts and the current spot market level.
An annualized premium of 10% to 20% (base) is interpreted as neutral, which is known as contango. This price difference reflects the opportunity cost of arbitrage, generally the stake ownership rates of stablecoins.
Conversely, when this indicator fades or turns negative, it suggests that the market is turning bearish quickly.
The graph above shows that the indicator hit a high of 32% on March 20th, indicating that buyers are using extreme leverage. As the price of ether fell, the futures base returned to a slightly bullish level of 23%.
Given the 10% drop in prices from the March 20 high of $ 1,850, the continued healthy futures premium is a bullish indicator.
The option bias has been neutral since February 5th
Although futures markets have been bullish for the past two weeks, options traders feel uncomfortable when they offer downside protection. Call options allow the buyer to buy Ether at a fixed price after the contract expires. Put options, on the other hand, offer buyers insurance and protect against price drops.
Whenever market makers and professional traders tend to decline, they charge a higher premium for put options. This trend results in a positive delta bias indicator of 25%.
A tilt indicator between negative 10 and positive 10 is considered neutral, which has been the case since February 5th. This shows a balanced risk assessment between traders and market makers between downside risk and upside risk.
Therefore, there is no evidence that options traders, unlike the ETH futures markets, are optimistic.
That data isn’t worrying considering that Ether was up 74% in 2021. After strong rallies, it is natural for dealers to seek protection for any price adjustments.
Support at $ 1,670 appears to be holding, but neither would it be surprising if Ether tested lower levels before rebounding to regain the critical psychological barrier of $ 1,800.
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