Ether (ETH) investors are struggling in 2022, with ETH taking 25% losses as of March 17 a year so far. Still, the cryptocurrency has bounced near $2,500 several times in recent months, signaling a solid support level.
Ether/USD price at FTX. Source: TradingView
On March 15, Ethereum developer Tim Beiko announced that the Kiln testnet – formerly Ethereum 2.0 – has 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 of the Beacon Chain. The ultimate goal is to turn the blockchain into a proof-of-stake network.
The United States Federal Open Market Committee (FOMC) raised interest rates to 0.50% on March 16 – the first such move since 2018. The monetary authority warned of continued “upward pressure on inflation,” precisely the problem that the aims to solve digital scarcity of cryptocurrencies.
Investors fear that further rate hikes by the FOMC could negatively affect risk markets. Higher borrowing costs, for example, reduce economic stimulus, hindering business expansion and consumer spending.
Regardless of its potential, Ether’s historical volatility of 80% shifts the perception of most investors to view it as a risky asset that will inevitably succumb to any broader market correction.
Ether futures show modest improvement in sentiment
To understand how professional traders are positioned, one should look at the Ether futures and options market data. First, the baseline indicator measures the difference between longer-term forward contracts and current spot market levels.
The annualized premium of Ether futures should run between 5% and 12% to compensate traders for “locking in” the money for two to three months until the contract expires. Levels below 5% are extremely bearish, while numbers above 12% indicate bullishness.
Ether 3-month futures’ annualized premium. Source: Laevitas
The chart above shows that Ether’s base indicator recovered from 2% on March 13 to the current 3.5%. However, such a level falls below the 5% threshold expected in neutral markets, indicating that professional traders are far from comfortable holding ETH futures.
Thus, one can estimate that any breach of the $3,200 resistance will overwhelm investors, triggering strong buying activity to cover short positions.
Options traders fear ETH could fall lower
Ether’s daily closing price has ranged from $2,500 to $3,000 over the past 27 days, making it difficult to discern a direction in the market. In that sense, the 25% delta skew is very useful, as it shows whether arbitrage bureaus and market makers are charging too much for protection upwards or downwards.
If those traders fear an Ether price crash, the skew indicator will move above 10%. On the other hand, generalized arousal reflects a negative 10% skew. That is exactly why the measure is known as the “fear and greed” measure of professional traders.
Related: How Professional Ethereum Traders Place Bullish ETH Price Bets and Limit Losses
Ether 30-day options 25% delta skew: Source: Laevitas
As shown above, the skew indicator has been above 10% since March 11, indicating fear as these options traders overcharge for protection from downside pressure.
While there was a modest improvement in the Ether futures premium, the indicator remains at bearish levels. Given that the ETH options markets are charging a higher risk of downside pressure, it is safe to conclude that professional traders are not confident that the current USD 2,500 support will hold.
All is not lost for Ether bulls, however, as the cheap futures premium offers the opportunity to profit for a long time at a low cost. As long as the Ethereum network continues to make strides in solving its scalability problem, it is still possible that the $3,200 resistance will be revisited given global macroeconomic uncertainty and inflation.
The views and opinions expressed here are solely those of the writer and do not necessarily reflect the views of Coin-Crypto. Every investment and trading move involves risks. You should do your own research when making a decision.