Ether (ETH) is still in troubled waters after failing to break a five-week-long descending channel top for the third time in a row. The March 2 test of the $3,000 resistance was followed by a 17.5% correction in five days, which signals that buyers are somewhat reluctant to defend the price.
To date, Ether suffers from high network transaction fees, even though it dropped from $19 in mid-February to the current $13 per transaction. While this is less than peaks seen previously, $13 per transaction is still incompatible with most games, nonfungible token and even decentralized finance transactions.
Even more worrisome than Ether's performance has been the total value locked (TVL) in Ethereum declining by 55% on March 8. Data shows the percentage of assets locked in its smart contracts reached an all-time low versus competitors.
This indicator could partially explain why Ether has been in a down-trend since early February. But, more importantly, one needs to analyze how professional traders are positioning themselves and there's no better gauge than derivatives markets.
The futures premium has flatlined
To understand whether the current bearish trend reflects top traders' sentiment, one should analyze Ether’s futures contracts premium, which is also known as a "basis." Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges.
By measuring the expense gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market. Conversely, bearish sentiment tends to cause the three-month futures contract to trade at a 5% or lower annualized premium (basis).
On the other hand, a neutral market should present a 5% to 15% basis, reflecting market participants' unwillingness to lock in Ether for cheap until the trade settles.
The above chart shows that Ether‘s futures premium has bottomed on Feb. 28 near 1.5%, a level typically associated with moderate pessimism. Despite the slight improvement to the current 3% basis, futures market participants are reluctant to open leverage long (buy) positions.
Long-to-short data confirms the lack of excitement
The top traders' long-to-short net ratio excludes externalities that might have impacted the longer-term futures instruments. By analyzing these top clients' positions on the spot, perpetual and futures contracts, one can better understand whether professional traders are leaning bullish or bearish.
There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes instead of absolute figures.
Curiously, when Ether's futures premium bottomed at 1.5% on Feb. 28, ETH's price was remarkably close to the current $2,600. Thus, it makes sense to compare the top traders' long-to-short ratio over this period.
Binance shows the same level of top traders Ether positions at 0.92 on Feb. 8 and March 8. However, these whales and market markers at Huobi and OKX effectively reduced their longs. For instance, the long-to-short ratio at Huobi declined from 1.07 to the current 1.00. Furthermore, OKX traders' current 1.47 ratio is smaller than 1.58 from eight days ago.
All the data points to further downside
From the perspective of the metrics discussed above, there is hardly any sense that Ether price will flip bullish in the short-term. The data suggests that pro traders are unwilling to add long positions, as expressed by the basis rate and long-to-short ratio.
Moreover, the TVL data does not back a strong usage indicator of Ethereum smart contracts. Losing ground to competitors, while constantly delaying the migration to a proof-of-stake solution is likely pulling investors’ attention away and making long investors feel uncomfortable.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.