Ethereum futures premium hits a 7-month low as ETH tests the $2,400 support

Ether (ETH) hit a local high of $3,280 on Feb. 10, recovering 51.5% from the cycle low of $2,160 on Jan. 24. That price was its lowest in six months, and it partly explains why derivatives traders’ main sentiment gauge plummeted to bearish levels.

Ether’s annualized futures contract, or basis, reached 2.5% on Feb. 25, reflecting bearishness despite rallying 11% to $2,700. The deteriorating conditions illustrate investor doubts about the shift of the Ethereum network towards a proof-of-stake (PoS) mechanism.

As reported by Coin-Crypto, the highly anticipated sharding upgrade that will significantly increase throughput is set to take effect in late 2022 or early 2023.

Analyzing Ether’s performance from a longer-term perspective yields more attractive sentiment as the cryptocurrency is currently 45% below its all-time high of $4,870.

In addition, the adjusted total value locked (TVL) of the Ethereum network has held a reasonable 42.8 million ETH despite the price correction.

Total value of Ethereum network locked, in ETH. Source: DefiLlama

As shown above, the network’s TVL rose 16.5% in three months, reflecting the growth of decentralized financial (DeFi) and non-replaceable token (NFT) markets.

However, due to delays in network upgrades and deteriorating global macro conditions, professional traders are becoming frustrated and anxious, a sentiment reflected in multiple derivatives statistics.

Ether futures hit their most bearish level in seven months

Retailers usually avoid quarterly futures because of their fixed settlement date and price difference from spot markets. However, the biggest advantage of the contracts is the lack of a fluctuating financing rate hence the prevalence of arbitration desks and professional traders.

These fixed month contracts usually trade at a small premium to spot markets, as sellers charge more money to hold back the settlement longer. This situation is technically known as “contango” and is not exclusive to crypto markets.

Ether futures 3-month annualized premium. Source: Laevitas

Futures should trade in healthy markets at a 5% to 15% annualized premium. But as shown above, Ether’s annual premium has fallen from 20% on October 21 to a paltry 2.5%.

While the baseline indicator remains positive, it has reached its lowest level in seven months. The crash to $2,300 on Feb. 24 allowed bearish sentiment to take over, and even the 10% recovery from Feb. 25 was not enough to turn the tables.

Currently, the data shows little sign that bulls are ready to regain control. If this were the case, the premium for Ether futures would have turned positive after such a rally.

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.

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