Ether (ETH) experienced a significant decline of 10% on March 15, dropping to $3,567, its lowest point in over a week. This downward trend resulted in forced liquidations of $126 million in ETH futures. This has raised concerns among investors about a potential shift away from the recent bullish trend and the possibility of revisiting the $4,090 level observed on March 12. The demand for Ether derivatives may hold the key to answering these questions.
The decline in Ether mirrored similar drops in Bitcoin (BTC) and the wider cryptocurrency market, indicating that it was not an isolated underperformance. Traditional financial assets, such as the S&P 500 index, also experienced sell pressure, with a 1.1% drop after reaching a new all-time high on March 14. However, it is important to note that this does not necessarily reflect the sentiment among ETH investors.
Experts believe that the movement to take profits is not unique to the crypto markets. This is exemplified by the U.S. 2-year Treasury yield reaching its peak in over three months on March 15. An increase in yield suggests selling pressure as investors seek higher returns on fixed-income assets. Consequently, traders are moving towards cash for security, whether cryptocurrencies are viewed as risky investments or scarce alternatives.
Investors are now closely watching the U.S. Federal Reserve’s next scheduled meeting on March 20, where the base interest rate will be determined. Concerns arise from recent data on consumer inflation (CPI) and the producer price index, which slightly exceeded expectations. This may compel the Fed to maintain interest rates at 5.25% for a longer period than initially anticipated. Such a prospect puts downward pressure on the economy and favors fixed-income investments.
Thierry Wizman, a global FX and rates strategist at Macquarie, suggests that the Fed’s concern extends beyond 2024 and 2025, indicating a belief in the need for higher long-term interest rates. Despite the volatility and uncertainty in global economies, Ether’s 57% year-to-date rise in 2024 is a strong vote of confidence. However, given the short-term outlook of crypto investors, it is important to analyze the ETH futures and options markets to determine if the bullish momentum has diminished after the recent price drop.
Examining Ether derivatives reveals no signs of stress or a change in trend. Perpetual contracts, also known as inverse swaps, feature a recalculated embedded rate every eight hours. A positive funding rate indicates a higher demand for leverage from traders with long positions. The data shows that ETH funding rates have consistently remained above 0.03% per eight-hour period, equivalent to 0.6% weekly. When traders are excessively optimistic about a bull market, these rates can surge above 2.1% per week. Therefore, it is evident that traders in perpetual futures did not shift to a bearish stance during the March 15 correction.
Analyzing the balance between call (buy) and put (sell) options can determine if traders were caught off guard and are now holding long positions at a loss. An increase in the demand for put options typically suggests that traders are preparing for neutral to bearish price movements. Over the past 10 days, the demand for Ether call options has surpassed that for protective puts by an average margin of 60%. This ratio can be considered neutral, especially considering that crypto traders tend to lean towards bullish positions. Therefore, there is no significant indication that the Ether derivatives market suffered from the 10% price drop on March 15. Based on the current state of Ether futures and options, the bull market appears to be unaffected, with indicators pointing towards continued strength.
It is important to note that this article does not provide investment advice or recommendations. All investment and trading decisions involve risk, and readers should conduct their own research before making any decisions.