Main Points:
Ether’s decline mirrored wider altcoin trends, with liquidations balanced by stable open interest.
Ether options and perpetual funding data show diminished bullish interest, but no derivatives-related cause for the drop.
Ether (ETH) experienced a 9.2% drop within 12 hours due to a cautious shift in the cryptocurrency market. Over $500 million in forced liquidations from bullish positions occurred, but buyers emerged around $4,150. Traders are now pondering whether the downturn was overblown and if further drops below $4,000 are possible.
Ether’s drop closely followed broader altcoin market movements, indicating no particular issues within the Ethereum ecosystem. Although ETH futures saw much higher 24-hour liquidations, this largely reflected increased open interest and widespread use of derivatives instead of excessive bullish leverage.
Ether futures open interest totaled $63.7 billion on Sunday, while SOL (SOL), XRP (XRP), BNB (BNB), and Cardano (ADA) combined for $32.3 billion, as per CoinGlass data. Notably, Ether futures open interest remained stable at ETH 14.2 million on Monday compared to the previous day, showing that the liquidation effect was balanced by the introduction of new leveraged positions.
Ether derivatives displayed lack of excessive bullish sentiment
To evaluate whether Ether traders adjusted their outlook following the abrupt negative price movement, it’s informative to examine the ETH monthly futures premium. Under normal circumstances, these contracts usually trade 5% to 10% above spot markets due to longer settlement periods. High demand for short positions can push the premium below this range.
Ether’s annualized monthly futures premium fell to its lowest level in three months, indicating weak demand for leveraged long positions. Data confirms that bulls have lacked confidence since Saturday, when the ETH premium fell below the 5% neutral barrier.
ETH perpetual contracts offer additional insights into traders’ sentiment. In neutral scenarios, the annualized funding rate generally fluctuates between 6% and 12%.
Ether perpetual futures funding rate dipped to -6% before recovering to -1% on Monday. The metric had already fallen below the neutral 6% level on Thursday, disputing the notion that cascading liquidations were primarily driven by excessive bullish leverage.
Institutional interest could spur an ETH rebound
It’s feasible that a limited number of entities adopted overly optimistic positions, but the initial cause of Ether’s weakness is unclear and seems to have triggered panic selling among other cryptocurrency traders.
Ether options present another means to gauge whether professional traders foresaw a crash. If prior positioning occurred, even among a few entities, the demand for put (sell) options would have surged relative to call (buy) contracts. Typically, a ratio exceeding 150% favoring puts indicates significant fear of a decline.
Related: BitMine holds over 2% of ETH supply, announces $365M offering
On Deribit, the put-to-call Ether options volume remained near 80% from Wednesday to Sunday, consistent with the 30-day average. In summary, ETH derivatives data reflect diminishing demand for bullish positions, but no signals that derivatives markets were the source of the downturn.
Instead, indications suggest that futures liquidations were a result of panic selling, temporarily reducing risk appetite. However, this likely won’t be a long-term issue given Ether’s alignment with major altcoins. The case for ETH reaching $4,600 is bolstered by increasing corporate reserves and growing interest in spot Ether exchange-traded funds (ETFs).
This article is for general informational purposes and is not intended to be taken as legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the opinions of Cointelegraph.
