After failing to break the five-week-long, descending channel top for the second time in a row, Ether (ETH), is still in trouble. A 17.5% correction was seen in five days following the March 2 test at $3,000 resistance. This indicates that buyers are not willing to defend the price.
Ether has been suffering from high network transaction fees. This is despite the fact that it fell from $19 in February to $13 per transaction. Although this is lower than the previous peaks, $13 per transaction still makes Ether incompatible with most games and nonfungible tokens, as well as decentralized finance transactions.
Price of Ether/USD at FTX. Source: TradingView
More concerning than Ether’s performance is the decline in total value locked (TVL), which fell 55% by March 8. Data shows that the percentage of assets in Ether’s smart contracts has fallen to an all-time low.
This indicator could partly explain why Ether is in a downtrend since February. However, it is important to examine how professional traders position themselves. The best gauge for this is derivatives markets.
The futures premium is flatlined
The Ether futures contracts premium is used to determine whether the current bearish trend is a reflection of top traders’ sentiment. Also known as a “basis”, it can be used to analyze Ether’s futures contract premium. These fixed-calendar options do not have funding rates, which is why their prices will be different from regular spot exchanges.
A trader can determine the degree of bullishness by measuring the gap in expense between futures and regular spot markets. Bearish sentiment can cause three-month futures contracts to trade at a 5% annualized premium (basis)
A neutral market, on the other hand, should offer a 5%- 15% basis. This is due to market participants’ inability to lock Ether for cheap while the trade settles.
Premium Ether 3-month Futures. Source: laevitas.ch
The chart above shows that Ether’s futures premium reached a low point on February 28th at 1.5%. This level is typically associated with moderate pessimism. Futures market participants have resisted opening leverage long (buy), positions despite a slight increase in basis to 3%.
The lack of excitement is confirmed by the short-to-long data
Externalities that could have had an impact on the longer-term futures instruments are not included in the long-to-short net ratio of top traders. Analyzing the positions of these top clients on spot, perpetual, and futures contracts will help you to understand whether professional traders are bullish or bearish.
Sometimes there are methodological differences between exchanges. Therefore, viewers should pay attention to changes and not absolute numbers.
Top traders in exchanges Ether long-to–short ratio Source: Coinglass
Curiously, Ether’s futures premium dropped to 1.5% on February 28th. The current price of ETH was $2,600. It makes sense to examine the long-to-short ratios of top traders over this time.
Binance has the same number of Ether top traders positions at 0.92 on February 8 and March 8. These market markers at Huobi, OKX and whales effectively decreased their longs. Huobi’s long-to-short ratio declined from 1.07 percent to 1.00. The OKX traders’ 1.47 ratio today is lower than the 1.58 ratio eight days ago.
All data points to further downside
The metrics mentioned above suggest that Ether prices will not turn bullish in the near-term. Pro traders don’t want to take long positions as indicated by the basis rate or long-to-short ratio.
The TVL data doesn’t support strong usage indicators for Ethereum smart contracts. While losing ground to competitors and delaying the migration into a proof-of–stake solution is likely to draw investors’ attention, it can also make long-term investors uncomfortable.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.