Today’s 13% drop to $4,100 may have given Ether (ETH), traders cause to panic. This rapid pullback seems to have broken the 55-day ascending channel, which had a target of $5,500.
Price of Ether/USD at FTX. Source: TradingView
People who are not concerned about technical analysis will see that cryptocurrency’s 3.4% daily volatility is more than enough to justify the 10% price swing. However, externalities like Monday’s approval of the United States infrastructure bill should not be ignored.
The law requires that digital asset transactions exceeding $10,000 be reported to the Internal Revenue Service. This law will not apply to businesses and individuals who develop blockchain technology or wallets.
On Nov. 12, VanEck’s request for a spot Bitcoin exchange-traded funds application was officially denied by the United States Securities and Exchange Commission. The regulator also cited “fraudulent, manipulative acts and practicies” and the lack of transparency regarding Tether’s USDT stablecoin.
The liquidations of today were not significant
The unexpected ETH price movement triggered $200 million worth leveraged long futures contract liquidations, but open interest in Ether’s futures markets remains healthy.
Futures ETH aggregate open interest Source: CoinGlass.com
The $11.9 billion that is still available for perpetual and quarterly futures contracts are 37% more than it was two months ago. The number of leverage shorts (sell), longs (buy), and longs (buy), are equal in every derivatives contract.
Pro traders don’t seem to be too optimistic
The basis rate, also known as futures premium, is a measure of professional traders’ bearishness. This indicator measures the price gap between futures contracts prices and regular spot market prices.
The preferred instrument of choice for whales and arbitrage desks is Ether’s quarterly Futures. Although derivatives can seem difficult for retail traders because of the settlement date and price difference with spot markets, their greatest advantage is the absence of a fluctuating financing rate.
Three-month basis rate for Ether futures. Source: Laevitas.ch
Three-month futures are traded with an annualized premium of 5% to 15%, which is considered an opportunity cost for arbitrage traders. Sellers can postpone settlement and demand a higher price. This causes the price gap.
Related: Can Solana outperform Ethereum in terms of growth?
The Ether surge above $4,000 on Oct. 21 brought the basis rate up to 20%, which is a sign of excessive leverage from buyers. The indicator fell to 12% after three weeks of fluctuating between 14% and 20 percent.
The basis rate is still neutral-to-bullish but it indicates that some buyers’ excess heat has been terminated. This is basically a healthy cleansing. Ether traders should take derivatives’ data into consideration as a short cooling period, given the dramatic image of the ascending channel break.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.