ETH prices lost 9.8% between Feb. 19 and Feb. 25 after resistance at $1,725 was stronger than expected. However, the correction was not enough to break the 6-week-old ascending channel, nor did it cause the ETH derivatives indicator to turn bearish.
ETH Price Index 1-Day | Source: TradingView
ETH’s price elasticity may be due in part to the failed operations of several competing smart contract blockchain competitors. For example, Solana faced a 20-hour outage on February 25th, which could only be resolved after a network upgrade orchestrated by validators. The network restart also caused some of the latest positions to be deleted, although Solana developers claim that “no confirmed user transactions were rolled back or affected.”
NEM also encountered a 15-hour “chain pause” on February 27, which caused several exchanges to suspend deposits and withdrawals. In the meantime, the developers promised to release updates to prevent further wrongdoing. Oddly enough, the latest post from NEM’s official Twitter account, in addition to the Merry Christmas greeting, was a July 2022 “please wait” image.
The regulatory environment for cryptocurrencies remains unclear, with the latest casualties being global payment processors Visa and Mastercard. On Jan. 28, they will delay new partnerships with cryptocurrency firms until market conditions improve and a more transparent regulatory framework is established.
The good news is that Ethereum’s Sepolia testnet was successfully hard forked on February 28 in preparation for the Shanghai upgrade. The much-anticipated mainnet update, scheduled for March, will finally allow validators to withdraw ETH from the beacon chain. The developers are currently preparing to bring the Goerli testnet to a similar stage.
The following article will look at ETH derivatives data to see if the retest of the $1,560 support level on February 25 affected crypto investor sentiment.
ETH Futures Show Growing Demand for Leveraged Longs
In a healthy market, the two-month futures spread should trade between 5% and 10% per year to cover the costs and risks involved. However, when contracts trade at a discount (negotiable price) to the traditional spot market, it shows a lack of confidence among traders and is considered a bearish indicator.
2-month ETH Futures Annual Spread | Source: Laevitas
The chart above shows that derivatives traders became more bullish as the ETH futures spread (on average) hit 5% on February 12. More importantly, it proved that even prices can recover even after falling almost 10% between February 19 and February 25.
Increased demand for leveraged (long) long positions does not necessarily imply positive price action. Therefore, traders should analyze the ETH options market to understand how whales and market makers are pricing future moves.
Options risk gauges show resilience despite 10% slide
A delta bias of 25% indicates when market makers and arbitrageurs charge too much to protect bullish or bearish momentum.
During bear markets, options traders offer higher chances of selling, pushing the skew gauge above 10%. Bulls, on the other hand, tend to drop the deviation indicator below -10%, which means there is less demand for put options.
25% delta deviation for 60-day ETH options | Source: Laevitas
The delta deviation is close to the 9% price drop on February 27th, indicating stress among professional traders. However, the situation improved on February 28, when the index changed to 5 – indicating similar upside and downside risk tolerance.
Fundamentalists therefore recommend avoiding adding to bullish positions ahead of the Shanghai upgrade, especially given that ethereum developers have a history of delaying major changes to the network.
While many factors are involved, the options and futures markets suggest that professional traders are cautiously optimistic and that the upward pattern will continue. From a technical analysis perspective, investors seem to think that unless ETH breaks below the channel support at $1,520, the uptrend will continue.
- Ethereum’s Shanghai is creating traction for liquid staking protocols
- Crypto adoption in Vietnam and Philippines lures Ethereum Foundation to host Devcon7 in Southeast Asia
- BUSD volume on Coinbase just hit $9 million in February
Mingying
As reported by Cointelegraph
