After a 42% rally over a three-week period, Ether (ETH) peaked at $3,580 on April 3 and since then, a 12% correction to $3,140 has taken place.
Tech giants launching their own smart contract platforms and regulatory uncertainty might have impacted investors’ sentiment and derivatives metrics also show worsening conditions that confirm professional traders' shift toward a bearish sentiment.
On April 6, the Financial Times reported that Meta is reportedly planning to introduce virtual currency and lending services. This move is aimed at exploring alternative sources of revenue for Facebook, WhatsApp, Instagram and Messenger.
United States Senator Pat Toomey, the ranking member of the Senate Banking Committee, also drafted a bill proposing a regulatory framework for stablecoins. The legislation requires issuers to back up their stablecoin reserves with assets "that are cash and cash equivalents or level 1 high-quality liquid assets denominated in U.S. dollars."
Despite Ether’s price correction to $3,200, the network’s value locked in smart contracts increased 13% in 30 days to $85.6 billion. Thus, it is worth exploring whether the mood of derivatives traders was impacted by the recent price rejection.
Derivatives show Ether traders flipping bearish
To understand whether the market has flipped bearish, traders must look at the Ether futures contracts' premium, also known as the "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.
A trader can gauge the market bullishness level by measuring the expense gap between futures and the regular spot market.
Futures should trade at a 5% to 12% annualized premium in healthy markets. Yet, as displayed above, Ether's annualized premium has decreased from 6% on April 5 to the current 4.5%.
Options markets flirt with pessimism
To exclude externalities specific to the futures instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.
The opposite holds when greed is prevalent, causing the 25% delta skew indicator to shift to the negative area.
The 25% skew indicator has been ranging between 4% and 8% since March 22, indicating balanced pricing for bullish and bearish options. However, the correction to $3,140 on April 7 caused the metric to momentarily test 9.5%, the threshold for a neutral-to-bearish sentiment.
While the current 7% reading is still neutral, it is safe to say that Ether pro traders became more uncomfortable as Ether traded down 12% in four days. Presently, there is a mild sense of bearishness in the market.
Of course, none of that can predict when Ether will continue to downtrend but considering the current derivatives data, there's less demand for leverage longs.
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