Technical analysis is a controversial topic, but higher lows are often interpreted as signs of strength. As of today, Ether (ETH) could be 30% below its May 12 high of $ 4,380, but the current price of $ 3,050 is 78% above the 6-month low of $ 1,700. To understand whether this is a “glass-half-full” situation, one has to analyze how private and professional traders position themselves in the derivatives markets.
On September 24, Chinese authorities announced new measures to curb the adoption of cryptocurrencies, which resulted in Ethereum’s second mining pool (Sparkpool) announcing the cessation of operations on Monday. According to Sparkpool, the measures are intended to ensure the safety of user resources in response to “regulatory requirements”.
Binance also announced that it will suspend fiat deposits and spot cryptocurrency trading for Singapore-based users, as required by local authorities. Huobi, another of Asia’s leading spot and derivatives exchanges, also announced that it would withdraw accounts from users based in mainland China by the end of the year.
Professional traders are neutral, but fear is widespread
To assess whether professional traders are trending higher, first look at the premium on futures contracts, also known as the base rate. This indicator measures the price difference between the price quotations of futures contracts and the regular spot market.
Quarterly Ether Futures are the preferred instruments of professional traders and arbitrage desks. Even if it may seem complicated for private customers due to the settlement date and the price difference to the spot markets, its greatest advantage is the lack of a fluctuating financing rate.
3-month futures typically switch hands with an annualized premium of between 5% and 15%, comparable to the stablecoin loan rate. Due to the delay in processing, sellers demand a higher price, which creates the price difference.
As shown above, Ether’s slide below $ 2,800 on September 26th caused the base rate to test the 5% threshold. Although he did it again on Monday.
Retailers typically prefer perpetual contracts (reverse swaps), where a commission is charged every 8 hours, whichever part requires the most leverage. To understand if long positions (buyers) are panicking due to the recent flow of news, you need to look at the funding rate of the futures markets.
In neutral markets, the financing rate tends to be between 0% and 0.03% on the positive side. This number equals 0.6% per week and indicates that it’s the buyers who are paying them.
There was a modest spike in the funding rate between September 1 and September 7, but it was resolved when a sudden crash in the crypto market triggered the liquidation of futures contracts valued at $ 3.54 billion. Apart from a few short and slightly negative phases, the indicator has been stable since then.
Both professional traders and retail investors appear unaffected by the 2,800 support’s recent visit. However, the situation could quickly be reversed and “fear” could arise if Ether falls below the price level that has been strong for 52 days.
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