Ethereum (ETH) has been suffering like all other cryptocurrencies in the past year. However, the recent price trends indicate that it is making a comeback. Although it is still not trading at its full strength, it is still a top player within the crypto scene. After all, it is one of the biggest cryptos today, next to Bitcoin (BTC). According to data on ETH derivatives, traders with a positive outlook on the market are speculating it to reach the $1700 mark.
From February 13 to 16, the value of Ether (ETH) increased by 18%, but it has been trading within a range near the $1,700 mark ever since. Although there has been a recent improvement in the price, the metrics for ETH derivatives suggest a neutral-to-bullish outlook as investors consider the implications of tighter regulations and the potential effects of the upcoming Shanghai upgrade.
Currently, the primary focus of investors is on regulatory measures, particularly following a recent announcement by the Financial Stability Board (FSB) of the United Kingdom that many stablecoins do not comply with international guidelines. The FSB, which is associated with the Bank of International Settlements and was established by the G20, has emphasized the need for proper crypto-asset regulation to be based on the principle of uniform regulation for activities posing similar risks. FSB chair, Klaas Knot, expressed this view.
On a positive note, there have been some encouraging developments in China. The government appears to be adopting a more lenient stance towards Hong Kong's aspirations to become a hub for the cryptocurrency industry. A recent report from Bloomberg on February 20 states that representatives from China have been attending crypto-related events in Hong Kong to understand local cryptocurrency business operations better.
A report from Binance has recently provided information on the current state of Ether staking and also delved into the reasons behind the belief that the Shanghai upgrade will not lead to the expected sell pressure on ETH, as predicted by some traders. The report explains that this is due to the availability of liquid staking derivatives, which enable users to take advantage of staked Ether while also retaining the ability to sell the derivative token.
Let's look at the data on Ether derivatives to determine whether the recent rejection of the $1,700 price level has impacted the overall sentiment of cryptocurrency investors.
ETH Futures Indicates Increased Demand for Leverage Longs
In a healthy market, the annualized premium for two-month futures contracts should fall within the 4% to 8% range, which would help cover the associated costs and risks. However, if the contract trades at a discount relative to the regular spot markets, it suggests that traders lack confidence and is a sign of a bearish market.
Ether 2-month futures annualized premium. Source: Laevitas
The above chart depicts that derivatives traders have shifted from a neutral-to-bearish stance to a more positive outlook as the Ether futures premium has surpassed the 4% threshold. Notably, it also illustrates market resilience even as ETH could not maintain its support level of $1,700 on February 21.
The rezuced demand for leverage shorts (bears) in the ETH futures market doesn't necessarily imply anticipation of positive price movement. Therefore, it is recommended that traders examine the Ether options markets to gauge how market makers and influential investors (whales) value the likelihood of future price fluctuations.
Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
Option Risk Metrics Shift From Bearish Sentiment
At a time of arbitrage desks and market makers charging excessively for either upside or downside protection, the 25% delta skew can provide valuable insight.
During bear markets, options investors offer a greater probability of price declines, leading to a skew indicator surpassing 10%. Conversely, in bullish markets, the skew metric is likely to drop below -10%, indicating less demand for bearish put options.
Ether 30-day options 25% delta skew: Source: Laevitas.ch
On February 14, the delta skew came close to reaching the bearish 10% level, which indicated that professional traders were experiencing anxiety. Nonetheless, as the week progressed, the situation improved, and the index approached 0, implying that traders had a comparable risk appetite for both upward and downward movements.
At present, options and futures markets suggest that professional traders are shifting towards a neutral-to-bullish outlook, indicating a higher probability of ETH surging above the $1,700 resistance level. Consequently, the likelihood of Ether bulls succeeding is high as investors stay composed despite the regulatory pressures and negative emotions surrounding the forthcoming Shanghai upgrade.
Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
Going Forward With The Current Market
Price indicators are pointing toward a possible increase in the price of Ethereum, as the Average Directional Index (ADX) has fallen below the 25.0 threshold. This index indicates the current trend's strength, which for Ethereum is currently a downtrend.
The Parabolic Stop and Reverse (SAR) indicator shows a downtrend for Ethereum, with black dots above the candlesticks. However, the recent slip of the Average Directional Index (ADX) below the 25.0 threshold indicates that the downtrend is losing strength. As a result, the ETH price is expected to start an uptrend in the subsequent few trading sessions.
If the market reacts negatively and the immediate support at $1,552 is lost, there is a high probability of a price drop to $1,506. If this support cannot provide a rebound, then the price is expected to test a crucial support level at $1,449. If a daily candlestick below this level is formed, the bullish scenario would no longer be valid, and the price will likely dip further to $1,306.
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