ETH Derivatives Show Professional Traders Are Worried About Ethereum’s $2.5K Support

Ether (ETH) investors are having a hard time in 2022, with ETH accumulating a 25% loss as of March 17. However, the cryptocurrency has rallied multiple times to almost $2,500 in the past few months, signal a solid support level.

On March 15, Ethereum developer Tim Beiko announced that the Furnace testnet – formerly Ethereum 2.0 – successfully passed the Ethereum “Merge”. The process involves taking Ethereum’s Execution Layer from the existing proof-of-work layer and merging it with the Consensus Layer from the Signaling Chain. The ultimate goal is to turn the blockchain into a proof-of-stake network.

US Federal Open Market Committee (FOMC) increase interest rate to 0.50% on March 16 – the first such move since 2018. The Monetary Authority warned of “increased pressures on inflation”, precisely the problem that digital scarcity of cryptocurrency wants to settle.

Investors are concerned that further rate hikes by the FOMC could have negative consequences for risk markets. For example, higher borrowing costs reduce economic stimulus, creating barriers to businesses expansion and consumer spending.

Regardless of its potential, Ether’s 80% historical volatility has changed the perception of most investors to view it as a risky asset that will certainly not withstand the correction. the broader market ultimately.

Ether futures show modest sentiment improvement

To understand the position of professional traders, one should look at Ether futures and options market data. First, the underlying indicator measures the difference between a long-term futures contract and the current spot market level.

The annual premium on Ether futures will be between 5% and 12% to compensate traders for “locking in” funds for two to three months until the contract expires. Levels below 5% are extremely bearish, while numbers above 12% indicate an uptrend.

The chart above shows that Ether’s fundamentals have recovered from 2% on March 13 to 3.5% now. However, such a level falls below the 5% threshold expected on neutral markets, signaling that professional traders are far from comfortable holding ETH futures.

Thus, one can judge that a break of the $3,200 resistance will eventually catch investors off guard, generating strong buying activity to cover short positions.

Options Traders Fear ETH May Drop Lower

Ether’s daily closing price has ranged from $2,500 to $3,000 over the past 27 days, making it difficult to determine direction in the market. In that sense, the 25% delta deviation is extremely useful, as it shows whether arbitrageurs and market makers are charging too much for bullish or bearish protection.

If those traders fear a drop in the price of Ether, the skew indicator will move above 10%. On the other hand, overall excitement reflects a negative bias of 10%. That is why this indicator is called the “fear and greed” gauge by professional traders.

Related: How Professional Ethereum Traders Bet ETH Price Rising While Limiting Losses

As shown above, the indicator has skew more than 10% since March 11, showing fear, as these options traders are charging too much for bearish protection.

Despite a modest improvement in Ether futures premium, the indicator remains bearish. Considering the ETH options markets price higher downside risk, it can be concluded that professional traders are not confident that the current $2,500 support will hold.

However, not everything is lost for Ether bulls, as the cheap futures premium offers the opportunity to take advantage of the long term at a low cost. As long as the Ethereum network continues to make progress in addressing its scalability issue, there is still a chance the $3,200 resistance level is revisited given the global macroeconomic uncertainty. and inflation.

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