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Ethereum's Shaky Stance Above $1,820
Despite a fleeting rise above $2,000 on May 6th, it's clear that ETH supporters are hesitant to capitalize on leveraged longs. The Ether price has slipped back into the familiar territory of $1,820 to $1,950, holding steady within this bracket for the past three weeks.
As current Ether futures and options data suggests, it's more likely for the Ether price to dip below the $1,820 support line. Professional traders have demonstrated reluctance in establishing neutral-to-bullish stances via derivatives contracts.
The Impact of the Memecoin Mania and the Ethereum Foundation's Sale
Even the recent memecoin mania, which heightened demand on the Ethereum network, failed to bolster investor confidence. On May 6th, the average Ethereum transaction fee surged to a 12-month peak of $27.70, as shown by BitInfoCharts data. This spike was largely attributed to the insatiable demand for memecoins like Pepe (PEPE).
The rise in transaction fees has redirected users towards layer-2 solutions, arguably indicating weakness. This shift could result in a decreased total value locked, as deposits are pulled from the Ethereum chain, especially from decentralized finance applications.
Speculation also surrounds the Ethereum Foundation's recent sale of $30 million worth of Ether, arguing that this contributed to ETH's inability to surpass the $2,000 threshold. Approximately 20,000 ETH were transferred to the Kraken cryptocurrency exchange, marking the foundation's most significant transaction since November 2021.
Macroeconomic Factors at Play
The April consumer price index (CPI) data for the United States, released on May 10th, came in slightly below expectations at 4.9%. This resulted in growing anticipation among investors for stable interest rates at the upcoming Federal Reserve meeting in June. According to CME Group's FedWatch Tool, there's a 94% probability of the current 5% to 5.25% range remaining constant.
Without any signs of a Fed pivot, demand for risk-on assets like cryptocurrencies could face pressure. If investors perceive a greater risk of Ether breaking below its three-week lateral movement, it should be reflected in the ETH futures contract premium and elevated costs for protective put options.
A Dive into Ethereum Derivatives
Ethereum quarterly futures are favored among large-scale investors and arbitrage desks. Typically, these fixed-month contracts exhibit a slight premium over spot markets, indicating sellers demand more to postpone settlement. In healthy markets, ETH futures should show a 5% to 10% annualized premium — a condition called contango, common across various markets.
However, the recent lukewarm response to the rally above $2,000 on May 6th indicates that traders are approaching with caution. The current ETH futures premium stands at 1.4%, signifying a lack of buyer interest through derivatives contracts.
An Insight into Ether Options
Options markets also offer an insight into whether recent corrections have affected investor sentiment. The 25% call-to-put delta skew is a useful gauge of how much more arbitrage desks and market makers charge for protection against price fluctuations.
If traders expect a drop in Ether's price, the skew metric will fall below 7%, whereas periods of optimism tend to correlate with a positive 7% skew. The ETH options' 25% call-to-put delta skew has remained neutral over the past fortnight, indicating that protective put options are trading at fair prices relative to similar call options.
Potential Bearish Flip for Ethereum Derivatives
Professional traders' lack of confidence, despite a 10.6% rally between May 2-6, suggests that weak derivatives indicators are more prone to a bearish turn if Ether's price falls below the three-week range. In simpler terms, if Ether's price dips below $1,820, expect to see a surge in bearish bets using ETH derivatives, suggesting a decline in trust and demand for longs.
