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Pro traders turn into bears after Ethereum price plunges to $3,200

After a 42 percent rally over three weeks, Ether (ETH) peaked at $3,580 on April 3 and since then a 12 percent correction to $3,140 has taken place.

Tech giants launching their own smart contract platforms and regulatory uncertainties may have impacted investor sentiment, and derivatives metrics also show deteriorating conditions that are pushing professional traders to switch to bearish sentiment to confirm.

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Ether/USD price on FTX. Source: TradingView

On April 6, the Financial Times reported that Meta is reportedly planning to launch virtual currencies and lending services. This move aims to explore alternative revenue streams for Facebook, WhatsApp, Instagram and Messenger.

US Senator Pat Toomey, the senior member of the Senate Banking Committee, also drafted a bill proposing a regulatory framework for stablecoins. The legislation requires issuers to back their stablecoin reserves with assets “that are Level 1 cash and cash equivalents or high-quality liquid assets denominated in US dollars.”

Despite Ether’s price correction to $3,200, the network’s value locked in smart contracts increased by 13% in 30 days to $85.6 billion. As such, it is worth examining whether derivatives traders’ sentiment has been affected by the recent price rejection.

Derivatives show ether traders turning bearish

To understand if the market is bearish, traders need to look at the premium of ether futures contracts, also known as “basis.” Unlike a perpetual contract, these fixed calendar futures contracts do not have a funding rate, so their price is very different from regular spot exchanges.

A trader can gauge the level of bullishness in the market by measuring the cost gap between futures and the regular spot market.

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Ether Perpetual Futures 8 hour funding rate. Source: Coinglass.com

Futures should trade at an annualized premium of 5% to 12% in healthy markets. However, as illustrated above, Ether’s annualized premium has fallen from 6% on April 5 to 4.5% currently.

Related: The FDIC wants US banks to report on current and proposed crypto-related activities

Options markets flirt with pessimism

To rule out externalities specific to the futures instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric turns positive when fear prevails because the protective premium of put options is higher than that of similar-risk call options.

The opposite is true when greed prevails, causing the 25% Delta Skew indicator to turn negative.

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Ether 30-day options 25% delta skew. Source: Laevitas.ch

The 25% skew indicator has been hovering between 4% and 8% since March 22, indicating balanced pricing for bullish and bearish options. However, the correction to $3,140 on April 7 saw the metric temporarily test 9.5%, the threshold for neutral to bearish sentiment.

While the current 7% reading is still neutral, it’s safe to say that Ether pro traders felt uncomfortable as Ether traded down 12% in four days. There is a slight bearish feeling in the market right now.

Of course, none of this can predict when Ether will continue to trend lower, but given the current derivatives data, there is less demand for leveraged longs.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.