Ethereum Data Shows Investor Confidence for Growth
2023.01.25 03:54
Ethereum Data Shows Investor Confidence for Growth
Budrigannews.com – The cost of Ether (ETH) energized 16% between Jan. 14 and Jan. 21, topping at $1,680 prior to confronting a 5.4% dismissal. Inquisitively, a similar obstruction level brought about a significant rectification in late August and again toward the beginning of November 2.
On one hand, traders are pleased that Ether is up 35.5% year to date; on the other, investors may have been less optimistic due to the numerous corrections that follow retests of the $1,680 resistance.
After troubled cryptocurrency company Digital Currency Group (DCG) faced additional legal issues this week, negative newsflow may have diminished Ether investors’ appetite. Genesis Capital creditors filed a lawsuit on January 23 claiming that the company had broken federal securities laws. In addition, the plaintiffs claim that the lending company engaged in a scheme to defraud potential and existing digital asset lenders by making false and misleading statements.
A “temperature check” proposal to apply the Uniswap v3 protocol to the BNB Chain received overwhelming support from the Uniswap community on January 22, triggering yet another new set of concerns for Ether holders. The additional version of the decentralized exchange protocol has been chosen to be implemented by approximately 80% of Uniswap’s UNI governance token holders.
Positively, Ethereum developers have developed a testing environment for the upcoming upgrade to the Shanghai network. The testnet appears to have been created to test staking withdrawals, which are currently disabled on the mainnet, according to Ethereum developer Marius Van Der Wijden. Over 14.5 million ETH, or $23 billion, have been deposited into the Ethereum staking contract, and the numerous delays in allowing withdrawals have drawn severe criticism.
To determine whether the $1,680 price rejection has affected crypto investors’ sentiment, let’s examine the data from Ether derivatives.
Due to the price difference between quarterly futures and spot markets, retail traders typically steer clear of them. Professional traders, on the other hand, prefer these instruments because they stop funding rates from changing in a perpetual futures contract.
In healthy markets, the annualized premium for three-month futures should trade between 4% and 8% to cover costs and risks. A bearish sign is when futures trade at a discount to regular spot markets, indicating that leverage buyers lack confidence.
The Ether futures premium has reached the 4% threshold for neutral markets, as shown in the chart above, indicating that derivatives traders are no longer bearish. Therefore, bulls can rejoice that the indicator moved to a modest premium, but traders should not anticipate positive price action occurring immediately.
Traders should therefore investigate Ether’s options markets to learn how whales and market makers are pricing the odds of future price changes.
When market makers and arbitrage desks overcharge for upside or downside protection, the 25% delta skew is a telling sign.
Options traders favor a price dump in bear markets, which causes the skew indicator to rise above 10%. Conversely, bearish put options are discounted when bullish markets drive the skew indicator below -10 percent.
In the past week, the delta skew has remained close to zero, indicating that Ether options traders are expressing neutral sentiment. That contrasts sharply with the end of 2022, when the 25% skew index was close to 18%, indicating a lack of confidence in taking risks on the downside.
In the end, both the options and futures markets point to professional traders shifting from a neutral to a bearish position, indicating that there is no discomfort following the rejection at $1,680 and subsequent correction.
As a result, the odds favor Ether bulls because there is still little demand for shorts using futures contracts and the negative newsflow could not stop the gains of 35.5% year to date.
There is neither investment advice nor recommendations in this article. Risk is involved in every investment and trading move, so readers should do their own research before making a decision.
