Ether (ETH) gained 5.6% on Dec. 20 after testing the $1,150 support the previous day. Still, a bearish trend prevails, forming a three-week-long descending channel, a price action attributed to expectations of further U.S. Federal Reserve interest rate hikes.

Ether/USD price index, 12-hour. Source: TradingView

Jim Bianco, head of institutional research firm Bianco Research, said on Dec. 20 that the Fed will keep the economy tightening in 2023. Later that day, Japan’s central bank effectively raised interest rates far later than its global counterparts. The unexpected move made analysts more bearish toward risk assets, including cryptocurrencies.

Ethereum might have caught some tailwind after the global payment processor Visa proposed a solution to allow automatic funding from Ethereum wallets. Auto-payments for recurring bills aren’t possible for self-custodial wallets, so Visa proposed relying on smart contracts, known as “account abstraction.” Curiously, the concept emerged in 2015 with Vitalik Buterin.

The most pressing issue, however, is regulation. On Dec. 19, the U.S. House Financial Services Committee reintroduced legislation aimed at creating innovation offices within government agencies dealing with financial services. According to North Carolina Representative Patrick McHenry, companies could apply for an “enforceable compliance agreement” with offices located in agencies like the Securities and Exchange Commission and Commodity Futures Trading Commission.

Consequently, investors believe Ether could revisit sub-$1,000 prices, as the U.S. Dollar Index (DXY)  loses strength while the 10-year U.S. treasury yields show higher demand for protection. Trader CryptoCondom expects the next couple of months to be extremely bearish for crypto markets.

Let’s look at Ether derivatives data to understand if the bearish macroeconomic movement has negatively impacted investors’ sentiment.

The recent bounce above $1,200 did not instill bullishness

Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.

The two-month futures annualized premium should trade between +4% to +8% in healthy markets to cover costs and associated risks. When the futures trade at a discount versus regular spot markets, it shows a lack of confidence from leverage buyers, which is a bearish indicator.

Ether 2-month futures annualized premium. Source: Laevitas.ch

The chart above shows that derivatives traders continue to use more leverage for short (bear) positions as the Ether futures premium remains negative. Still, the absence of leverage buyers’ demand does not mean traders expect further adverse price action.

For this reason, traders should analyze Ether’s options markets to understand whether investors are pricing higher odds of surprise adverse price movements.

Options traders not keen on offering downside protection

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.

Ether 60-day options 25% delta skew: Source: Laevitas.ch

The delta skew increased after Dec. 15 from a fearful 14% against the protective put options to the current 20%. The movement signaled that options traders became even less comfortable with downside risks.

The 60-day delta skew signals whales and market makers are reluctant to offer downside protection, which seems natural considering the three-week-long descending channel.

In a nutshell, both options and futures markets point to pro traders not trusting the recent bounce above $1,200. The present trend favors Ether bears because the odds of the Fed maintaining its balance sheet reduction program seem high, which is destructive for risk markets.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.