The price of ether (ETH) fell 10.2% between Jan. 8-10 and has been trading in a range around $1,500 since then. What’s more, on a broader time frame, Ether is down 52.5% in 12 months, which partly explains why the derivatives indicator rallied after Ether’s failed attempt to break above $1,700 on Feb. 8. Some neutral.
Investors’ biggest concerns right now are SEC lawsuits and enforcement actions against cryptocurrency companies, including Kraken’s crackdown on its as-a-service program and PayPal’s reported suspension of its stablecoin project due to regulatory concerns.
The SEC’s crackdown on cryptocurrency staking is expected to have unintended consequences for decentralized finance (DeFi), according to Jacob Blish, head of business development at Lido DAO. Blish joins a growing number of cryptocurrency industry figures calling for greater transparency in the regulation of the cryptocurrency industry.
On the bright side, Ethereum developers announced the pre-launch of the Shanghai upgrade on the Zhejiang testnet. According to a blog post on Feb. 10, a transition is required to allow withdrawals from validators’ staking positions. The Zhejiang testnet, the first of three testnets simulating Shanghai, is expected to go live in March 2023, although no specific date has been announced.
Let’s look at ether derivatives data to see if the $1,700 price rejection affected crypto investor sentiment.
ETH Futures Show Slowing Demand From Leveraged Longs
Quarterly futures are often avoided by retail traders due to price differences from the spot market. Professional traders prefer these tools because they protect against fluctuations in funding rates in perpetual futures contracts.
In a healthy market, three-month futures should trade at annualized premiums between 4% and 8% to cover costs and associated risks. However, when futures trade below the regular spot market, it signals a lack of confidence among leveraged buyers, a bearish indicator.
Ether 3-month futures annualized premium. Source: Laevitas.ch
The chart above shows that derivatives traders are more bearish as ether futures contango falls below the 4% threshold. As such, bears can celebrate the metric’s failure to show a modest premium, even as ETH tested $1,700 on Feb. 8.
A lack of demand from leveraged longs doesn’t necessarily mean expectations of adverse price action. Therefore, traders should analyze Ether’s options market to understand how whales and market makers are pricing the possibility of future price movements.
A key options risk indicator flirts with bearish sentiment
A delta skew of 25% is a clear signal when market makers and arbitrage desks charge too much for upside or downside protection.
In a bear market, options investors are giving higher odds of a price crash, causing the skew indicator to rise above 10%. On the other hand, a bullish market tends to push the skew indicator below -10%, implying less demand for bearish put options.
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Ether 30-day options 25% delta deviation: Source: Laevitas.ch
On February 14, the delta skew approached the bearish 10% level, indicating pressure from professional traders. This is in stark contrast to late January, when the 25% skew index hovered around 2% – suggesting similar upside and downside risks.
Ultimately, both options and futures markets signaled a shift toward neutral to bearish sentiment among professional traders, showing modest discomfort following rejection at $1,700.
Therefore, the odds are high that Ethereum bears, as a hostile regulatory environment tends to amplify the adverse effects of FUD — whether or not it directly impacts the adoption and use cases of the Ethereum network.
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Information source: compiled by 0x information from COINTELEGRAPH.Copyright belongs to the author Marcel Pechman, without permission, may not be reproduced