Investors in Ether (ETH), are experiencing a difficult time in 2022. ETH has suffered 25% year-to-date losses as of March 17. The cryptocurrency has rebounded several times to $2,500 in the last few months, signaling a strong support level.
Price of Ether/USD at FTX. Source: TradingView
Tim Beiko, an Ethereum developer, announced that Kiln, formerly Ethereum 2.0, had passed the Ethereum Merge. This involves taking Ethereum’s Execution Layer (previously proof-of-work) and merging it into the Consensus Layer (from the Beacon Chain). The ultimate goal is to make the blockchain a proof-of stake network.
On March 16, the United States Federal Open Market Committee increased interest rates by 0.50% — their first move since 2018. The US Federal Open Market Committee (FOMC) raised interest rates to 0.50% on March 16 — the first such move since 2018. This is precisely the problem that cryptocurrencies are trying to solve, as it warned about “upward pressure inflation”.
Investors are concerned that the FOMC will increase rates further, which could lead to negative effects on risk markets. A higher cost of borrowing can reduce economic stimulus, which could lead to a decrease in consumer spending and business expansion.
Ether’s historical volatility of 80% makes it a risky asset. Investors will eventually see it as a risky asset.
Futures of Ether show modest sentiment improvements
Ether’s options and futures market data can help you understand the position of professional traders. The basis indicator is a measure of the difference between current spot market levels and longer-term futures contracts.
To compensate traders who “lock in” the money for the two- to three month period before the contract expires, the annualized premium for Ether futures should be between 5% to 12%. Low levels below 5% indicate extreme bearishness, and high numbers above 12% mean bullishness.
Annualized premium for Ether 3-month futures. Source: Laevitas
The chart above shows that Ether’s basis indicator has recovered from 2% as of March 13th to 3.5% at the moment. This level is below the 5% threshold on neutral markets and indicates that pro traders are not comfortable with holding ETH futures longs.
One can therefore conclude that a break of the $3,000.00 resistance will surprise investors and create strong buying activity to cover short positions.
Options traders worry that ETH could fall lower
Ether’s daily closing prices have fluctuated between $2,500 and $3,000 over the past 27 days making it difficult for traders to see a market direction. The 25% delta skew, which shows whether arbitrage desks or market makers are charging too much for downside or upside protection, is very useful in this sense.
The skew indicator will rise above 10% if traders are worried about an Ether price crash. Generalized excitement, on the other hand, reflects a skew of minus 10%. This is why the metric is also known as the “fear and greed” metric for pro traders.
Similar: How professional Ethereum traders place bullish price bets on ETH while minimizing losses
Ether 30-day options 25% delta-skew: Source: Laevitas
As you can see, the skew indicator is now at over 10% since March 11. This indicates fear that these options traders are charging too much for downside protection.
Although there was a slight improvement in Ether’s futures premiums, the indicator is still at a bearish level. Professional traders don’t believe the $2,500 support will be sustained, given the higher risk of downside in ETH options markets pricing.
The cheap futures premium gives Ether bulls the chance to leverage long-term at a low price. It is possible that the $3,000.00 resistance will be reexamined as long as Ethereum continues to improve its scaling problem. This is considering inflation and global macroeconomic uncertainty.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.