Technical analysis is a controversial topic, but higher lows are generally interpreted as a sign of strength. On September 28, Ether (ETH) could be 30% lower than its May 12 high of $ 4,380, but the current price of $ 3,050 is 78% higher than the six-month low of 1,700 $. To understand if this is a “half full glass” situation, we must analyze how private and professional traders position themselves in relation to the derivative markets.
On September 24, Chinese authorities announced new measures to curb crypto adoption, forcing Ethereum’s second-largest mining pool (Sparkpool) to suspend operations on September 27. According to Sparkpool, the measures are aimed at ensuring the security of user assets. in response to “regulatory policy requirements”.
Binance also announced that it will stop escrow deposits and spot crypto trading for Singapore-based users in accordance with local regulatory demands. Huobi, another leading cash and derivatives exchange in Asia, also announced that it will be removing existing user accounts based in mainland China by the end of the year.
Pro traders are neutral, but fear is starting to set in
To assess whether professional traders are bullish, one should start by analyzing the term premium, also known as the base rate. This indicator measures the price difference between the prices of futures contracts and the regular spot market.
Quarterly ether futures are the preferred instruments of whales and arbitrage bureaus. While this may seem complicated to retail traders due to their settlement date and price difference compared to spot markets, their most important advantage is the absence of fluctuating funding rates.
Three-month futures contracts typically trade at an annualized premium of 5% to 15%, comparable to the stable lending rate. By postponing the settlement, the sellers demand a higher price, causing the price difference.
As illustrated above, the ether’s fall below $ 2,800 on September 26 caused the base rate to test the 5% threshold.
Retail traders typically opt for perpetual contracts (reverse swaps), where a fee is charged every eight hours depending on which side requires the most leverage. So, to understand if longs are panicking due to the recent newsflow, we need to analyze the funding rate of futures markets.
In neutral markets, the funding rate tends to vary from 0% to 0.03% on the positive side. This number equates to 0.6% per week and indicates that it is the longs that pay it.
Between September 1 and September 7, there was a moderate spike in the funding rate, but it dissipated when a sudden crypto crash caused $ 3.54 billion in future contract closeouts. Apart from a few short and slightly negative periods, the indicator has remained stable since then.
Professional traders and retail investors do not appear to be affected by the recent $ 2,800 support tested. However, the situation could quickly reverse and a “fear” could arise if Ether fell below such a price point, which has been holding for 52 days.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of TSTIME. Every investment and trade move involves risk. You should do your own research before making a decision.