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Home » Two derivatives metrics suggest that Ethereum is unlikely to rally to 3700
Two derivatives metrics suggest that Ethereum is unlikely to rally to 3700
Two derivatives metrics suggest that Ethereum is unlikely to rally to 3700
Ethereum

Two derivatives metrics suggest that Ethereum is unlikely to rally to 3700

06/14/20244 Mins Read
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Ether (ETH) traders were caught off guard as the price neared the $3,500 mark on June 11, resulting in the liquidation of $90 million in ETH leveraged long positions within just 48 hours. While the drop was mainly influenced by larger economic factors such as the revised outlook from the United States central bank and data on U.S. jobless claims, Ether investors have now turned bearish, as indicated by two specific metrics.

Federal Reserve projections played a role in the weakness of ETH prices. On June 12, the U.S. Federal Reserve released its interest rate projections, with four officials anticipating no changes until the end of 2024, while the remaining 15 officials were split, expecting either one or two cuts by the end of the year. This news disappointed risk-on investors, reducing the appeal of moving away from fixed-income assets. However, Fed Chair Jerome Powell emphasized that the labor market and price stability would continue to guide monetary policy decisions.

The U.S. Labor Department revealed on June 13 that the number of Americans filing for new unemployment benefits had reached a 10-month high of 242,000 the previous week. Oliver Allen, a senior U.S. economist at Pantheon Macroeconomics, shared with Yahoo Finance, “High long-term rates, tight credit conditions, and a gradual softening in demand are beginning to have a heavier impact on businesses, especially small companies.”

Typically, weak macroeconomic indicators are positive for risk-on assets like Ether, as they may prompt the Fed to consider interest rate cuts sooner if economic weaknesses persist. However, there is no guarantee that investors will turn to alternative assets like cryptocurrencies in a challenging economic environment, especially with the absence of a U.S. spot Ether exchange-traded fund (ETF), adding to the uncertainty.

According to Fox Business journalist Eleanor Terrett, Gary Gensler, chair of the U.S. Securities and Exchange Commission, has suggested that it could take up to three months to approve the S-1 filings for individual Ether ETFs. This delay is one reason investors are becoming more cautious about purchasing bullish ETH derivatives, in addition to a decrease in decentralized application activity.

The delta skew is used to gauge the demand for bullish versus bearish options. A negative skew indicates a preference for call options (buy), while a positive skew indicates a preference for put options (sell). Neutral markets typically have a delta skew ranging from -7% to +7%, indicating balanced pricing between call and put options.

Between June 11 and June 12, the Ether 25% delta skew shifted into bullish territory as it fell below -7%. However, this positive sentiment waned on June 13 after Ether failed to hold above the $3,600 mark, leading traders to anticipate similar probabilities of both positive and negative price movements for ETH.

Retail traders often opt for perpetual futures, a derivative closely tracking the price movements of the underlying spot markets. Exchanges enforce a funding rate every eight hours to manage balanced risk exposure. The rate becomes positive when buyers (longs) demand more leverage and turns negative when sellers (shorts) require additional leverage.

Currently, the Ether perpetual funding rate has stabilized at 0.01% per eight-hour period, translating to 0.2% per week. This rate is generally seen as neutral, although periods of increased activity can push the weekly cost for leveraged long positions up to 1.2%. Notably, the funding rate was at 0.035% per week on June 6, indicating a decline in sentiment over the past week.

Despite the potential catalyst of an upcoming U.S. spot ETF and macroeconomic data pointing to a weakening job market, Ether derivatives have not been able to sustain high levels of optimism. As a result, the likelihood of ETH surpassing $3,700 in the near future appears diminished.

This article is intended for general informational purposes only and should not be construed as legal or investment advice. The thoughts and opinions expressed in this article are solely those of the author and do not necessarily reflect the views of Cointelegraph.

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