Descending channel pattern and weak futures data continue to constrain Ethereum price

Although Ether (ETH price bounced from a 45-day high on April 30th, the channel is still descending. The subsequent 9% increase over the past four trading days was enough to allow the altcoin’s pattern to reach $2,870 resistance.

Price of Ether/USD at FTX. Source: TradingView

The Federal Reserve’s monetary policy continues its major influence on crypto price movements. This week’s volatility may be linked to comments by the FOMC. The benchmark overnight interest rate at the United States Federal Reserve was increased by half a point on May 4. This is the largest increase in 22 years. Although the unanimous and widely anticipated decision was made, the monetary authority stated that it would begin reducing its $9 trillion asset base in June.

Chairman Jeremy Powell stated that the Federal Reserve is determined restore price stability, even if it means hurting the economy through lower household spending and business investment. Powell dismissed the significance of the decline in gross domestic product over the first three month of 2022.

According to data from DefiLlama, Ether’s price corrected 14% in a month. However, the network’s value in smart contracts (TVL), increased by 7% in 30 day to 25.2 Million Ether. It is worth investigating whether the price fall below $3,000 has affected derivatives traders’ sentiment.

Futures for Ethereum show that traders remain bearish

The premium of Ether futures contracts, also called the basis rate, is a key indicator that traders need to understand whether the market has gone bearish. These fixed-calendar futures have a funding rate but are not a perpetual contract. Their price will be different from regular spot exchanges.

The expense gap between the regular spot and futures markets can be used to gauge market sentiment.

Premium Ether for 3-month futures. Source:

Futures should trade at a premium of 5% to 12 percent in healthy markets, to compensate traders’ deposits. As you can see, Ether has had an annualized premium below this threshold since April 5.

The current 3.5% base rate, despite a slight improvement in the last 24 hours, is often regarded as bearish because it signals a lackluster demand for leverage buyers.

Similar: Fed raises interest rates 50 basis points to combat inflation

The sentiment in the options markets has declined

Trader should also look at the options markets to exclude any externalities that may be associated with the futures instrument. The 25% delta skew, for example, compares similar call (buy), and put (sell).

This indicator will be positive when there is fear, as the protective put options premium for similar risk options is higher than comparable options. When greed is rampant, the 25% delta skew indicator will shift to the negative.

Ether 30-day options 25% delta-skew Source:

A 25% skew indicator range of negative 8% to positive 8% is generally considered neutral. The metric is currently at 14%, but it has been above this threshold since April 16.

Option traders are paying higher premiums to protect themselves from downside risks, so it is easy to conclude that sentiment has worsened over the past 30 days. There is a growing bearish sentiment in today’s market.

None of these data can tell if Ether will continue respecting the descending channel. It currently holds a resistance of $2,950. Nevertheless, the data from derivatives suggests that an eventual pump of $3,000 is likely to be short-lived.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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