Ether (ETH) rose 11.3% between Nov. 28 and Dec. 5, peaking at $1,300 before facing a 4.6% rejection. The $1,300 resistance level has held for twenty-six days and is the most likely explanation for the correction to $1,240 on December 6th.
So on the one hand, traders are relieved that Ether is trading 16% above the $1,070 low hit on November 22, but it must be frustrating to fail at the same level all week. In addition to the price rejection, investor sentiment soured after three members of the US Senate allegedly demanded information from Silvergate Bank regarding its relationship with FTX.
Lawmakers raised questions after “reports suggesting that Silvergate facilitated the transfer of FTX client funds to Alameda” and gave the bank until Dec. 19 to issue a response.
On Dec. 5, NBC News reported that Silvergate claims to be a “victim” of “apparent misuse of client assets and other misjudgments” by FTX and Alameda Research.
Newsflow remained negative after the Financial Times reported that the UK Treasury was finalizing some guidelines to restrict cryptocurrency sales from overseas. The changes would allow the Financial Conduct Authority (FCA) to monitor the operations of crypto companies in the region. The guidelines are being prepared as part of the Financial Services and Markets Bill.
Investors fear that Ether could lose support at $1,200, but as trader CashMontee pointed out, the S&P 500 stock index will be key – but right now “the market is too bullish.”
nah market too bullish i think. As long as spx remains active, so does crypto. Monthly level at 1205 which I think will be labeled next but we haven’t taken enough liquidity on eth yet to fall back but of course that could be wrong
— CashMontee (@CashMontee) December 5, 2022
Let’s take a look at Ether derivatives data to understand if the bearish news flow has impacted crypto investor sentiment.
Slight uptick in bearish demand for ETH futures leverage
Retail traders generally avoid quarterly futures because of their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.
The annualized premium for two-month futures should trade between +4% and +8% in healthy markets to cover the associated costs and risks. So when futures are trading at a discount to regular spot markets, it shows a lack of confidence on the part of leveraged buyers – a bearish indicator.
The chart above shows that derivatives traders remain bearish as the Ether futures premium is negative. So, bears can be happy that the indicator is far from the neutral premium of 0% to 4%, but that does not mean that traders expect immediate adverse price action.
For this reason, traders should analyze Ether options markets to rule out externalities specific to the futures instrument.
Options traders learn about downside risks
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.
The delta skew stabilized last week, signaling that options traders are more comfortable with downside risks.
Related: Ethereum ‘March 2020’ Fractal Hints at Low Price – But ETH Bears Predict 50% Crash
As the 60-day delta skew stands at 12%, whales and market makers are approaching neutral sentiment for Ether. Ultimately, the options and futures markets indicate that professional traders are concerned that retesting the $1,200 support may be the natural path for ETH.
The answer might as well be hidden under the upcoming macroeconomic calendar, which includes the gross domestic product (GDP) for the euro zone and Canada on December 7 and the consumer price index (CPI) for the United States. December 13.
Currently, the odds favor Ether bears as the news flow implies that the possibility of tighter regulation is weighing on the market.
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