ETH options prices and the long-to-short ratio of top traders signal a lack of confidence in support at $1,700.
Ether (ETH) is down 38% in three weeks and the current $2,000 level is 59% below the all-time high of $4,870 set in November 2021. after Coinbase, the largest US exchange, posted a $430 million loss in the first quarter of 2022.
In the most recent 10-Q filing, Coinbase included the following disclosure:
“In the event of bankruptcy, crypto assets we hold on behalf of our clients may be subject to bankruptcy proceedings.”
Regulatory uncertainty has also been partly responsible for Ethereum’s sharp correction. On May 11, Kukmin, a South Korean newspaper, reported on a leaked draft of the government’s upcoming Digital Asset Basic Law (DABA). The South Korean government is looking to introduce a regulatory framework for Initial Coin Offerings (ICOs), as well as a 20 percent tax on crypto profits over $2,100 per year.
Another factor influencing the markets is investor confidence in stablecoins. On May 11, dollar-denominated stablecoin Tether (USDT), the largest stablecoin by market cap, fell below its peg and traded below $0.99 on major exchanges. However, Tether and Bitfinex CTO Paulo Ardoino emphasized that USDT has maintained its stability thanks to numerous black swan events and “continues to process redemptions normally.”
Options traders don’t want to offer downside protection
To understand how larger traders are positioned, look at the Ether futures and options market data. A 25 percent delta skew is a telltale sign that arbitrage bureaus and market makers are overpriced for up or down protection.
When these traders fear a collapse in Ethereum prices, the skew indicator will rise above 10%. On the other hand, general arousal reflects a negative 10 percent asymmetry. That is why this metric is known as the professional trader’s fear and greed metric.
30-day Ether options with a delta skew of 25%: Source: Laevitas.ch
The skew indicator has been above 10% since April 23 and rose to a high of 29% on May 12. This indicator not only signals the extreme anxiety of options traders, but also reached the highest level ever recorded.
The last three weeks have shown a marked deterioration in sentiment, and the current delta skew of 27% indicates a clear unbalanced risk of unexpected up and down price swings.
Related: Untethered – Here’s Everything You Need to Know About TerraUSD, Tether, and Other Stablecoins
Long-Short Data Confirms Traders Are Risk Averse
The net long/short ratio of top traders excludes external factors that may have influenced specific derivatives. By analyzing the positions of these top local clients, perpetual contracts and futures contracts, one can better understand whether professional traders are bullish or bearish.
Sometimes methodological discrepancies arise between different exchanges, so viewers should follow the changes, not the absolute numbers.
The ratio of long and short Ethereum positions on the exchanges of leading traders. Source: piggy bank
Although Ethereum has fallen 29% since March 11 to a low of $1,700, professional traders have reduced their optimistic bets, according to the long-short indicator. The OKX Top Traders ratio fell from 1.25 to the current level of 0.85.
Binance data also shows that these traders reduced their long positions from 1.03 to 0.98 while Huobi remained at 1.00. This signals that buying activity from whales and market makers has been low amid a sharp correction in the Ether price.
The current data on Ethereum derivatives simply cannot be ignored, as both indicators reflect distrust on the part of professional investors. Priced high to protect against a fall, options traders are suggesting that Ethereum could fall below $1,700 in line with risk indicators.
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. When making a decision, you should do your own research.