Wishy-washy bulls turn bearish on Ethereum price despite positive data

Published at: May 24, 2021

Ether's futures premium has gone through a complete cycle, from April's extreme euphoria to the present level, which is the most bearish in six months. 

Believe it or not, in both situations, Ether's (ETH) price was roughly $2,100. This change shows how investors' mood depends on a few weeks' performances and holds no relation to longer time frames.

By analyzing the futures markets' price difference compared against regular spot exchanges, traders can better understand how the price move has impacted professional traders. Typically, the three-month futures trade with an 8% to 15% annualized premium, comparable to the stablecoin lending rate. By postponing settlement, sellers demand a higher price, causing the price difference.

On April 13, the Ether futures premium peaked at 47%, indicating extreme optimism. Ether rallied 36% to a $2,150 all-time high on April 2, and euphoria settled in as it surpassed the $2,200 resistance. At the same time, the net value locked in decentralized finance (DeFi) reached $50 billion, and analysts painted a $10,000 target for year-end.

The bull run was also fueled by EIP-1559 expectations, a proposal that could result in Ether being burned at a rate exceeding the creation of new supply.

On April 17, a 20% crash took place, causing a $1 billion long futures liquidation. That number represented 12.5% of the outstanding contracts, reducing the three-month futures premium to 25%. This optimistic level carried on as Ether recovered the $2,500 mark.

What caused the change in sentiment?

On April 25, Ether began a 100% rally that took the price to $4,170 in just 17 days. One would expect the three-month premium to have soared above 40%, but that did not happen. Somehow, longs were less likely to use excessive leverage compared with the previous month. Traders seemed skeptical of the surprising rally above $3,000 and therefore avoided leveraged longs.

On May 19, as Ether posted a 45% flash crash down to $1,870, the futures premium finally abandoned its optimistic level and moved below 16%. The futures premium remained relatively steady at 17% even as Ether's price crashed 30% between May 12 and 17. From what the data shows, most traders refused to believe that the trend had reversed and kept opening leveraged long positions despite the $2.8 billion in liquidations.

Ether futures finally completed the entire cycle as the futures premium went below 8% on May 21, marking a bearish sentiment. It is worth noting that this level was unseen since early November 2020.

The chart above shows just how short-sighted traders are, as Ether's price is 450% above the $380 seen in November 2020. The futures open interest has soared from $1 billion to the current $5.4 billion. Moreover, daily active addresses on the network have risen from 550,000 to 750,000.

As things currently stand, there isn't a single metric pointing to worsening fundamentals compared with six months ago.

However, investors seem unable to display bullishness due to the recent 56% correction in 12 days. The lesson here is that investors should "zoom out" instead of blindly trusting short-term market indicators and sentiment.

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.

Tags
Related Posts
Traders pin Ethereum’s route to new ATH to eventual Bitcoin ETF approval
The price of Ether (ETH) is lagging Bitcoin's (BTC) price action by 13% in October, but is this relevant? To date, the altcoin has still outperformed BTC by 274% in 2021. However, traders tend to be short-sighted and some will question whether the Ethereum network can successfully migrate to proof of stake (PoS) validation and finally solve the high gas fees issue. Moreover, the increasing competition from smart contract networks like Solana (SOL) and Avalanche (AVAX) have been worrying investors: One big problem with the “ETH is ultra sound money” meme is that EIP-1559 only limits the supply of ETH …
Bitcoin / Oct. 12, 2021
Bullish sentiment begins to fade after Ethereum all-time high at $4,200
The last couple of weeks have been nothing short of astonishing for Ether (ETH), as the cryptocurrency hiked over 80% to reach a $4,200 all-time high. Even after a 7% correction, the gains accumulated in 2021 surpass 300%, and Ether currently holds a market capitalization that exceeds $450 billion. In the face of such a mind-blowing performance, neither the futures contracts premium nor the options fear and greed indicator signal extreme optimism in the market. This data will likely lead some analysts to question whether traders are losing confidence in Ether's future price prospects. Citing the rationale for the current …
Markets / May 11, 2021
Flippening? Record $10B Ethereum futures volume briefly outpaces Bitcoin's
In the past 30 days, Ether (ETH) price decoupled from Bitcoin (BTC) to post a 67.5% gain, while the leading cryptocurrency price has barely moved. Ether's $3,605 all-time high on May 5 was responsible for boosting the asset's futures open interest to $10 billion. This movement brings up some crucial questions as the dominance of Bitcoin's derivatives markets appears to be challenged at the moment. On May 4, Ether's aggregate futures volumes surpassed Bitcoin's for the first time in history. Volume data from Coinalyze shows that $2.6 billion CME Bitcoin futures traded, along with $1.1 billion in CME Ether futures …
Markets / May 6, 2021
2 key Bitcoin price metrics suggest BTC is primed to reclaim $40,000
Cryptocurrencies had a volatile week after Bitcoin's (BTC) sudden crash to $33,000 on Jan. 24. However, the sharp 9% drop fully recovered within 8 hours after BTC price regained the $36,000 support. On Jan. 26, Bitcoin rallied to $38,960 but it could not sustain the level and corrected by 8.8% in the following 8 hours. When factoring in the recent ups and downs, Bitcoin managed to only gain a meager 1.6% over the past seven days. Even with the considerable price swings, the aggregate futures contracts liquidations were relatively low. Longs (buyers) had $570 million futures terminated, while shorts (sellers) …
Bitcoin / Jan. 31, 2022
Ethereum price moves toward $3K, but pro traders choose not to add leverage
Even though Ether (ETH) price bounced over 20% from the $2,300 low on Feb. 22, derivatives data shows that investors are still cautious. To date, Ether's price is down 24% for the year, and key overhead resistances lay ahead. Ethereum's most pressing issue has been high network transaction fees and investors are increasingly worried that this will remain an issue even after the network integrates its long-awaited upgrades. For example, the 7-day network average transaction fee is still above $18, while the network value locked in smart contracts (TVL) decreased 25% to $111 billion between Jan. 1 and Feb. 27. …
Markets / Feb. 28, 2022