Ethereum traders turn bearish as ETH price dips under $3K
2024.07.05 15:51
Ether (ETH) price plummeted below $3,000 for the first time in 50 days on July 5. This drop was part of a broader cryptocurrency market correction, largely influenced by Bitcoin (BTC). Traders now fear that the crypto bull run has ended, and despite the upcoming launch of a spot Ethereum exchange-traded fund (ETF) in the United States, some worry that Ether price could continue to fall.
Ether’s drop below $3,000 merely followed the crypto market correction
On July 5, the total market capitalization of cryptocurrencies fell below $2 trillion, a threshold not seen since Feb. 26. Ether’s 18% drop from $3,450 to $2,815 simply mirrored the sector’s 16% decline over three days, with no specific cause other than the generally worsening sentiment toward cryptocurrencies. Analysts suggest that this downturn was prompted by increased selling pressure on Bitcoin.
On July 7, the Mt. Gox bankruptcy estate transferred 47,229 Bitcoin—valued at $2.6 billion—to a new address. This move is part of the process to start repaying creditors, as some of the Bitcoin were sent to a hot wallet of the Bitbank exchange. This has raised concerns about a negative impact on BTC price, since these coins, locked up for over a decade, could exert up to $4.5 billion in selling pressure.
Adding to this pressure, the German government has moved 7,583 BTC to exchanges since June 19, amounting to $415 million. More alarmingly, the total coins held by German authorities are 42,274 BTC, valued at over $2 billion. The fear, uncertainty, and doubt (FUD) stirred by these large transactions have led to $936 million in liquidations of leveraged long positions over three days, including $235 million in Ether futures.
Traders are concerned that the 2024 cryptocurrency bull run might be over, especially as this downturn coincided with the S&P 500 index reaching a new high on July 5. The stock market responded positively to the U.S. announcement of a rise in the unemployment rate for June to 4.1%. A weaker economy tends to encourage interest rate cuts by the central bank, reducing the appeal of fixed-income investments.
Ether derivatives metrics do not show heavy hedging
Despite the scenario favoring risk-on assets, Ether and other cryptocurrencies failed to sustain their bullish momentum. Some market participants believe that the launch of a spot Ethereum ETF in the U.S. could positively impact Ether’s price, yet predicting potential inflows remains largely ineffective, especially given the current lack of investor interest in the sector. Under these circumstances, Ether traders have become less optimistic, as evidenced by derivatives metrics.
In neutral markets, Ether’s monthly futures contracts typically trade at a 5%–10% premium compared to ETH spot markets to compensate for the longer settlement period.
Ether 2-month futures annualized premium. Source: Laevitas.ch
Data shows that the annualized ETH futures premium dropped to 8% on July 5, down from 11% a week earlier. While this level isn’t particularly alarming, it is noteworthy given that traders still expected some positive impact from the upcoming spot Ether ETF launch.
Related: How US job market slump could boost Bitcoin prices
To assess whether the demand for hedging has increased following the recent price correction, it is helpful to analyze the Ether options market. Usually, if traders anticipate a price drop, the ETH options skew metric will rise above 7%. Conversely, periods of optimism are often indicated by a skew lower than -7%.
Ether 2-month options 25% delta skew. Source: Laevitas.ch
The Ether options skew has remained relatively stable over the past week at -5%. Moreover, it last entered bullish territory on June 26, indicating that the prevailing neutral sentiment has dominated for more than a week. On the positive side, there has been no excessive demand for downside protection while Ether’s price fell below $3,000.
Despite a 15% correction, Ether derivatives have shown relative resilience. This does not necessarily mean that ETH will quickly regain the $3,300 support level, but it does suggest that professional traders are not preparing for further declines or rushing to hedge against additional price drops.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
