Ethereum’s spot setup looks grim, but derivatives data tells a different story

The Ether (ETH), price dropped below $3,000 support on Sept. 20, as the global markets moved into a risk-aversion mode. The Invesco China Technology ETF closed lower by 4.2% while the SPDR S&P Metals and Mining ETF lost 3.8%.

Analysts pointed out the possible ripple effects of Evergrande’s default, a large Chinese real estate company. Others blame Washington’s ongoing debt limit debates as the reason for volatility this week. The CBOE Volatility Index, also known as “stock market fear index”, jumped more than 30% to its highest point since May.

Janet Yellen, U.S. Treasury secretary, called on Congress to increase the U.S. debt limit in a Wall Street Journal op ed. Yellen said that avoiding this would lead to the government defaulting on payments and a “widespread economic disaster.”

Traditional markets will be watching closely the U.S. Federal Open Market Committee meeting this week, which concludes on Sept. 22. The Federal Reserve will likely announce when it will reduce its $120 billion monthly asset purchasing program at the meeting.

These events have an impact on Ether prices Ether price in USD Source: TradingView

Although the $3,000 level is not in the top range of the performance over the past 45 days of Ether, it still saw 210% growth in 2021. The adjusted total value locked (TVL), rose from $13 billion to $60 billion in 2020. While Ethereum retained its market share, the sectors of decentralized finance (DeFi), gaming and nonfungible tokens (NFT) saw a dramatic increase.

Even though mean gas fees exceeded $20 in September, Ethereum still managed to keep roughly 60% of the DEX volume. Binance Smart Chain was the largest competitor and had a daily volume of just $1 billion. However, their transaction fees were below $0.40.

Futures data from Ether shows that pro traders remain bullish

Due to their settlement date, and the price difference with spot markets, Ether’s quarterly Futures are preferred instruments by whales and arbitrage desks. The contract’s greatest advantage is its lack of fluctuating funding rates.

Fixed-month contracts trade at a slightly higher premium than spot markets. This is because sellers are willing to pay more to hold settlements longer. Futures should be traded at a 5%- 15% annualized premium in healthy markets. This is technically called “contango”, but it is not only applicable to crypto markets.

ETH futures 3 month annualized premium Source: Laevitas

As you can see, Ether’s futures contract premium jumped to 15% on Sept. 6, when ETH price tested $4,000 resistance. The basis indicator was healthy and bullish, with a range of 8% to 12 percent over the past month.

Veteran traders were not scared by the sub-$3,000 crash in the early hours on Sept. 21. Importantly, the interview by Gary Gensler, chairman of U.S. Securities and Exchange Commission on cryptocurrency regulation had no impact on Ether prices. If there had been generalized fear, Ether futures premiums would have indicated this.

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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