Technical analysis is a controversial topic, but periods of higher recessions are often interpreted as a sign of strength. Ether (ETH) may be 30% below the May 12 high of $ 4,380 on September 28, but the current price of $ 3,050 is 78% above the six-month low of $ 1,700. To understand whether this is a half full glass situation, it is necessary to analyze how individual and professional traders position themselves in relation to derivatives markets.
Ethereum price for Coinbase in USD. Source: TradingView
On September 24, the Chinese authorities announced new measures to restrict crypto options, resulting in the halt of the second largest Ethereum mining pool (Sparkpool) on September 27. The measures are designed to help secure user assets in response to “Regulatory Policy Requirements,” Sparkpool said.
Binance also announced that it will stop fiat money deposits and explore cryptocurrency trading for Singapore-based users in line with local regulations. Huobi, another leading derivatives and spot securities exchange in Asia, also announced that it will withdraw existing accounts from China by the end of the year.
Professional traders are neutral, but fears are starting to subside
To assess whether professional traders are prone to gains, one must first analyze the futures premium, also known as the base price. This indicator measures the price gap between futures prices and prices in the regular spot market.
The quarterly ether futures contracts are the preferred instruments of the whale and arbitration bureaus. While this can be challenging to retail traders due to settlement history and price differences in the spot markets, their main advantage is that there is no volatile funding rate.
Base price of a 3-month Ether futures contract. Source: Laevitas
Three-month futures contracts typically trade at a premium of 5% to 15% on an annualized basis over the stablecoin interest rate. By delaying settlement, sellers are asking for a higher price, resulting in a price difference.
As shown above, the drop in Ether below $ 2,800 on September 26 put the base rate to test the 5% threshold.
Retail traders usually opt for perpetual contracts (reverse swaps), where a commission is charged every eight hours, depending on which side requires the most leverage. To understand whether the duration of the panic is due to the recent news flood, it is necessary to analyze the funding rates of the futures markets.
8 Hour Funding Rate for Perpetual Ether Futures. Source: Bybt
In neutral markets, the funding rate tends to fluctuate from 0% to 0.03% in the positive direction. This figure corresponds to 0.6% per week and indicates that the lungs are paying the price.
There was a moderate increase in the funding rate between September 1-7, but it disappeared when a sudden cryptocurrency liquidated $ 3.54 billion worth of futures contracts. Except for some short and slightly negative periods, the indicator has held its ground ever since.
It looks like both professional traders and retail investors were unaffected by the latest $ 2,800 support tested. However, the situation could quickly return and “fear” could arise if Ether falls below this price level, which has been strong for 52 days.