Ethereum bears have the upper hand according to derivatives data, but for how long?

Ethereum bears have the upper hand according to derivatives data, but for how long?

Ether (ETH) price fell 11.9% from Nov. 20 to Nov. 22, hitting a low of $1,074 — the lowest level seen since July. Currently, investors have reason to worry after crypto lending firm Genesis reportedly faced difficulties raising funds, sparking insolvency rumors on Nov. 21.

However, a spokesperson for Genesis told Cointelegraph that there are no imminent bankruptcy plans as the company continues to discuss with its creditors.

Unease about the centralization of decentralized finance (DeFi) emerged after Uniswap Labs changed the privacy policy on November 17, revealing that it collects publicly available blockchain data, user browser information, data on operating systems and interactions with its service providers.

Adding to the fracas, the hacker behind the $447 million FTX exchange heist was spotted moving his Ether funds. On November 20, the attacker transferred 50,000 ETH to a separate wallet and converted it to Bitcoin using two renBTC bridges.

Traders fear that the hacker will suppress the price of Ether to profit from it using leveraged short bets. The rumor was raised by @kundunsan on November 15, even though the Twitter post didn’t go live.

Let’s examine Ether derivatives data to understand if deteriorating market conditions have impacted crypto investor sentiment.

Professional traders have been in panic mode since November 10

Retail traders generally avoid quarterly futures contracts because of their price difference from spot markets, but they are preferred instruments by professional traders because they prevent the fluctuation in funding rates that often occurs in a contract. perpetual term.

Annualized premium of 2-month Ether futures contracts. Source: Laevitas.ch

The annualized three-month futures premium should trade between +4% and +8% in healthy markets to cover the associated costs and risks. The chart above shows that derivatives traders have been bearish since Nov. 10 as the Ether futures premium was negative.

Currently, there is a forward movement in the contracts and this situation is atypical and generally considered bearish. The metric failed to improve after ETH rose 5% on Nov. 22, reflecting professional traders’ reluctance to add leveraged long (bullish) positions.

Traders should also analyze Ether options markets to rule out externalities specific to the futures instrument.

Options traders fear additional crashes

The 25% delta skew is a telltale sign when market makers and arbitrage desks overcharge for upside or downside protection.

In bear markets, option investors give higher odds for falling prices, causing the bias indicator to rise above 10%. On the other hand, bullish markets tend to push the bias indicator below -10%, which means bearish puts are discounted.

Ether options 60 days 25% delta skew: Source: Laevitas.ch

The delta skew has been above the 10% threshold since Nov. 9, signaling that options traders were less inclined to offer downside protection. The situation worsened over the following days as the delta skew indicator jumped above 20%.

The 60-day delta bias is currently at 23%, so whales and market makers are setting higher prices for Ether. Consequently, the derivatives data shows low confidence as Ether struggles to maintain the $1,100 support.

According to the data, Ether bulls should not throw in the towel just yet as these metrics tend to be backward looking. The panic following the FTX bankruptcy and resulting liquidity issues at Genesis could dissipate quickly if public proof-of-reserves exchanges and institutional investors adding exposure to Bitcoin during the decline are interpreted as positive by investors. market players.

That said, at the moment, Ether bears still have the upper hand according to ETH derivatives metrics.