Look out below! Ethereum derivatives data hints at further downside from ETH

The Ether (ETH), is currently down 38% over three weeks. It is now at $2,000, 59% below its November 2021 all-time high of $4,870. The market volatility was further exacerbated by the newsflow surrounding the bankruptcy of Coinbase, the largest U.S.-based exchange. Coinbase reported a loss of $430 million in the first quarter 2022.

The following disclosure was made by Coinbase in its most recent 10-Q filing:

“In the event that a bankruptcies, the crypto assets that we hold for our customers could be subject to bankruptcy proceedings.”

Ether’s sharp correction was partly due to regulatory uncertainty. Kukmin, a South Korean newspaper, published a draft of the “Digital Asset Basic Act” (DABA) bill. South Korea’s administration plans to establish a regulatory framework for initial cryptocurrency offerings (ICOs), as well as a 20% tax on crypto profits above $2,100 per annum.

Investor confidence in stablecoins is another factor that can impact markets. USD Tether (USDT) broke below its peg on May 11th and traded at $0.99 on major exchanges. Tether’s chief technology officer Paulo Ardoino, Bitfinex, stated that USDT had maintained its stability through numerous black swan events. He also said that the currency “continues processing redemptions normally.”

Options traders won’t offer protection against downside

Ether’s options and futures market data can help you understand the position of larger traders. If arbitrage desks or market makers charge too much for downside protection, the 25% delta skew can be a sign.

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 pro traders fear and greed metric.

Ether 30-day options 25% delta-skew: Source: Laevitas.ch

Since April 23, the skew indicator has been at or above 10%. It reached a peak of 29% on May 12, when it soared to a new high of 29%. The metric also signals extreme fear from options traders and has now reached its highest ever recorded level.

The sentiment has been deteriorating for the past three weeks and the 27% delta skew currently shows a clear unbalanced chance of unexpected price swings upward or downward.

Related: Untethered. Here are all the details about TerraUSD, Tether, and other stablecoins

Long-to-short data shows traders are not taking on risk

Externalities that could have had an impact on specific derivatives 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

Professional traders cut their bullish bets based on the long-to short indicator, even though Ether fell 29% since March 11, to a $1700 low. The ratio of OKX’s top traders fell from 1.25 to 0.85.

Binance data also shows that these traders have reduced their longs by 0.98 to 1.03, while at Huobi the figure is unchanged at 1.01. This indicates that market makers and whales have not been buying Ether in spite of the sharp fall in Ether prices.

It is impossible to exaggerate Ether’s current derivatives data. Both indicators are indicative of a lack confidence from professional investors. According to risk metrics, Ether could fall below $1,700 due to option traders charging too much for downside protection.

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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