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Ethereum Derivatives Look Bearish, But Traders Think ETH Has Bottomed

Ether (ETH) gained 5.5% in the early hours of Nov 29, regaining critical $1,200 support. However, his negative performance of 24% over the past 30 days has a significant impact on investor sentiment when analyzing a wider timeframe. Moreover, investor sentiment worsened after BlockFi filed for bankruptcy on November 28.

The news flow remained negative even after the US Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with the Kraken Exchange for “clear violations of sanctions against Iran.” OFAC said in a Nov. 28 announcement that Kraken had agreed to pay more than his $362,000 as part of a deal to “settle potential civil liability.”

Additionally, on November 28, Silvergate Capital, a provider of cryptocurrency financial services to institutional investors, denied rumors that it was heavily involved in BlockFi’s bankruptcy. Silvergate added that the loss was less than $20 million in digital assets and reiterated that BlockFi is not the custodian of crypto-backed loans.

Traders worry that Ether will drop below $800 if the bear market continues, but some question the risk of deactivation. Thing.

Let’s take a look at Ether derivatives data to understand if the downturn in market conditions is affecting crypto investor sentiment.

Professional traders are slowly coming out of panic levels

Retail traders generally avoid quarterly futures due to the price differential with the spot market. Preferred by professional traders as it prevents the fluctuations in funding rates that often occur with perpetual futures contracts.

To cover the costs and associated risks, the 2-month futures annualized premium should trade between +4% and +8% in a healthy market. Therefore, when futures trade at a discount to the regular spot market, it indicates a lack of confidence from leveraged buyers and is a bearish indicator.

Annualized Premium for 2-Month Ether Futures. Source: Laevitas.ch

The chart above shows that derivatives traders remain bearish as Ether futures premiums are negative. Nonetheless, at least he showed some improvement on November 29th. Bears can highlight how far away from the neutral to bullish 0% to 4% premium, but the aftermath of the 71% drop in a year carries a lot of weight. .

Still, traders should analyze the Ether options market to rule out the externalities inherent in futures commodities.

Options traders don’t expect a sudden uptick

A delta skew of 25% is a sign that market makers and arbitrage desks are overcharging for upside or downside protection.

In a bear market, the skew indicator exceeds 10% as options investors set higher odds for a price decline. On the other hand, in a bullish market, skew indicators tend to be below -10%, meaning bearish put options are discounted.

Ether 60 Day Option 25% Delta Skew: Source: Laevitas.ch

Delta skew has fallen over the past week, indicating that options traders are willing to offer downside protection.

With a 60-day delta skew of 18%, whales and market makers are placing high odds on a drop in Ether’s price. As a result, both the options and futures markets show that professional traders fear a retest of the $1,070 low is the natural course of action for ETH.

On an optimistic note, data from on-chain analytics firm Glassnode shows that November 2022 was the fourth-largest selloff for Bitcoin (BTC). The move cost him $10.2 billion in realized losses in seven days.

As a result, the odds are that the surrender of Ether holders has passed and those who are now bullish bettors – who are going against the ETH derivatives indicator – may eventually gain the upper hand.