Key points:
The ETH futures premium and the put options skew suggest traders are hedging heavily despite an 8% price increase.
Ethereum’s weekly fees fell by 49% amid decreased DEX activity, while Tron and Solana saw a 9% rise in their fees.
Ether (ETH) rose by 8% on Tuesday but struggled near $3,000 as derivatives markets indicated skepticism about further gains. This increase followed a general cryptocurrency rally as traders anticipated improved prospects for new economic stimulus, particularly after recent strains in Japan’s government-bond market.
Market sentiment improved as investors expected the US monetary policy to become less restrictive. The Federal Reserve (Fed) concluded its balance-sheet reduction program on Dec. 1, with traders anticipating an interest-rate reduction on Dec. 10. Furthermore, major US financial institutions have notably increased their use of repurchase agreements, injecting liquidity into short-term funding markets.
The tech-focused Nasdaq index has regained most of its November losses and now trades about 3% below its all-time high. Nevertheless, ETH derivatives positioning remains tight, indicating a lack of strong conviction among bullish traders.
On Tuesday, the annualized premium on ETH monthly futures versus spot markets remained at 3%, unchanged from the previous week. Values below 5% suggest weak demand for leveraged long positions, a reasonable conclusion given Ether’s 22% decline in the past month.
Ether trails stocks as global policy shifts toward expansion
Ether’s underperformance compared to the US stock market is concerning, particularly as central banks hint at more expansive economic policies.
The Fed injected $13.5 billion through overnight funding on Dec. 1, marking the second-highest level in over five years. This liquidity backstop once held more than $2.5 trillion in excess cash in 2022, following stimulus measures and ultra-low interest rates. However, those reserves were later withdrawn as participants sought better returns elsewhere.
Additional factors may be affecting crypto demand, including concerns over excessive investments in artificial intelligence infrastructure and renewed regulatory scrutiny on stablecoins. China’s central bank also reiterated its commitment to increasing crackdowns on money-laundering activities and unauthorized cross-border digital asset transfers.
Professional Ether traders are apprehensive regarding potential downside risks, as indicated by ongoing stress in options markets.
ETH put (sell) options were traded at a 6% premium over comparable call (buy) contracts, a trend typically associated with bearish market conditions. For comparison, the skew metric stood at a neutral 4% on Friday. This change indicates lingering constraints on traders’ optimism, even as the US equity rally suggests a heightened risk appetite across traditional markets.
Ethereum network fees have dropped to their lowest levels in over three years, decreasing to $2.6 million over a seven-day period from $5.1 million four weeks earlier. This drop is partly due to diminished activity on decentralized exchanges, where volumes decreased to $13.4 billion in the same timeframe after hitting a peak of $36.2 billion in August.
Related: Ether price analysis–Will ETH continue to decline in December?
More troublingly, competing chains Tron and Solana recorded a 9% increase in their seven-day fees, according to Nansen data. Additionally, a movement of Ether from a dormant whale on Sunday heightened investor concern. An entity active since Ethereum’s inception in 2015 transferred 40,000 ETH to a new address, raising speculations about a possible sale.
Ethereum’s Fusaka upgrade, set for Wednesday, is a significant step towards enhanced scalability and improved wallet-management. However, decreased demand for decentralized applications has led to lower fees, indicating limited potential for ETH to outperform the general cryptocurrency market.
This article is meant for informational purposes only and should not be interpreted as legal or investment advice. The views, thoughts, and opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph.
