Technical analysis is a controversial topic, but higher dips are usually interpreted as a sign of strength. Today, Ether (ETH) may be 30% below the May 12 high at $4,380, but the current price of $3,050 is 78% higher than the 6-month low at $1,700. To understand whether this situation is “the cup is half full”, one must analyze how individual and professional traders are positioned according to the derivatives markets.
On September 24, the Chinese authorities announced new measures to curb the adoption of the cryptocurrency, causing the second largest Ethereum mining pool (Sparkpool) to suspend operations on Monday. According to Sparkpool, the measures are intended to ensure the safety of users’ assets in response to “regulatory policy requirements.”
Binance has also announced that it will halt fiat deposits and crypto trading for Singapore-based users in accordance with local regulatory requests. Huobi, another leading derivatives and spot exchange in Asia, also announced that it will retire user accounts located in mainland China by the end of the year.
Professional Traders Are Neutral, But Fear Is Stabilizing
To assess whether professional traders are inclined to the upside, one should start by analyzing the premium of the futures contract – also known as the underlying price. This indicator measures the price gap between futures prices and the regular spot market.
Quarterly ether futures contracts are the preferred instruments of whale and arbitrage desks. Although it may seem complicated to retail traders due to the settlement history and price difference from the spot markets, the most important advantage for them is the lack of a volatile funding rate.
The 3-month futures contract should typically trade at an annual premium of 5% to 15%, comparable to the fixed currency lending rate. By postponing settlement, sellers demand a higher price, which causes the price difference.
As seen above, Ether’s drop below $2,800 on September 26th caused the base rate to test the 5% threshold. Albeit again on Monday.
Typically, retail traders opt for perpetual contracts (reverse swaps), which are charged every 8 hours depending on which side requires more leverage. Thus, to understand if long positions are panicking due to the recent news flow, one must analyze the funding rate of the futures markets.
In neutral markets, the funding rate tends to vary from 0% to 0.03% on the positive side. This figure equates to 0.6% per week and indicates that long positions are paying off.
Between September 1 and September 7, there was a moderate rise in the funding rate, but it dissipated as the sudden collapse of cryptocurrencies caused the liquidation of future contracts worth 3.54 billion dollars. Aside from some short-term and slightly negative periods, the index has held steady since then.
It appears that both professional traders and retail investors are unaffected by the recent support of $2800 being tested. However, the situation could return quickly, and ‘fear’ could emerge if Ether drops below this price level, which has been strong for 52 days.
The opinions and opinions expressed here are solely those of author and do not necessarily reflect the opinions of Cointelegraph. Every investment and trading move involves risks. You should do your research when making a decision.
