The price of Ether (ETH) declined 9.8% between February 19 and February 25 after the price resistance at $1,725 proved stronger than expected. However, the correction was not enough to break the 6-week up channel and did not cause the Ether derivative metrics to turn bearish.
Ether’s price resistance can be partially explained by the operational failure of some smart contract blockchain competitors. For example, Solana (SOL) faced a 20-hour outage on February 25, which was only resolved after a coordinated network upgrade by validators. The network restart also involved cleaning up some of the latest slots, although developer Solana said that “no confirmed user transactions were restored or affected.”
NEM (XEM) experienced a “chain stoppage” on February 27 that lasted 15 hours, causing many exchanges to prevent deposits and withdrawals and developers promising to release updates to prevent incorrect behavior. Strangely, the latest post from the official NEM account on Twitter, not including Merry Christmas greetings, is the picture “Please Stand By” posted in July 2022.
The regulatory environment remains bleak for cryptocurrencies, and the latest victims are global payment processing companies Visa and Mastercard. According to a Reuters report published on February 28, the company is delaying the launch of new partnerships with crypto companies until market conditions improve and a more transparent regulatory framework is established.
In more positive news, the Sepolia Ethereum testnet successfully hard forked on February 28th in preparation for the Shanghai upgrade. The much-anticipated mainnet update expected in March finally allows validators to withdraw Ether purchased from the Beacon Chain. Developers are currently preparing the Goerli testnet to enter the same stage.
Let’s take a look at the Ether derivative data to find out if the retest of the $1,560 support on February 25 has affected crypto investor sentiment.
ETH futures show increased demand for leveraged longs
The annual two-month futures premium should trade between 5% and 10% in a healthy market to cover the associated costs and risks. However, when the contract trades at a discount (backwardation) versus the traditional spot market, it shows a lack of confidence from traders and is considered a bearish indicator.
The chart above shows that derivatives traders are becoming slightly bullish as the Ether futures premium (on average) plays with the 5% threshold on February 26. More importantly, it showed resilience even though the price of Ether dropped by almost 10% between February 19th and February 25th.
Increased demand for leveraged longs (bulls) does not necessarily translate into expectations of positive price action. Consequently, traders should analyze the Ether options market to understand how whales and market makers are pricing possible future price movements.
The option risk metric shows durability even with a 10% price drop.
The 25% delta skew is a sign that shows when market makers and arbitrage tables are overcharging for upside or downside protection.
In a bear market, option investors give a higher probability of a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to push the skew metric below -10%, meaning bearish options are less desirable.
related: Vitalik Buterin says ‘more needs to be done’ on Ethereum’s high txn fees
The delta skew flirted with the 9% bearish level on February 27, a stress signal from professional traders. However, the situation improved on February 28 as the index moved to 5 – indicating the same and declining risk appetite.
It makes sense for fundamental analysts not to increase their bullish positions before the Shanghai upgrade, especially since Ethereum developers have a history of delaying significant network changes.
Despite various factors, the options and futures markets signal that pro traders are conservatively bullish and believe the upward pattern will continue. From a technical analysis point of view, investors seem to believe that the bullish trend will continue unless Ether breaks the channel support at $1,520.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.
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