Key takeaways:
The distortions in ETH’s perpetual contracts are diminishing, with monthly futures indicating neutral conditions and a decrease in short-term market anxiety.
The options market reflects a balanced interest between bullish and bearish strategies, showcasing a robust derivatives market.
During the crash and the subsequent 48 hours, ETH outperformed most altcoins, highlighting its relative strength and bullish trend.
On Sunday, the price of Ether (ETH) rebounded to the $4,100 mark, alleviating some of the distress from Friday’s sharp 20.7% flash crash. The $3.82 billion in leveraged long liquidations left a significant impact on ETH derivatives, but four factors suggest that Ether’s recovery from the $3,750 support might indicate the end of this short-term correction.
The funding rate for ETH perpetual futures plummeted to -14%, indicating that short (bearish) traders are paying to maintain their positions, which is not sustainable over time. This unusual situation likely reflects rising concerns that some market makers or exchanges could face solvency challenges. Regardless of the validity of these worries, traders typically exercise greater caution until confidence is fully restored.
ETH derivatives indicate a return to normal despite market-wide uncertainty
Uncertainty lingers regarding whether exchanges will reimburse clients for mismanagement related to cross-collateral margin and oracle pricing. So far, Binance has committed to $283 million in compensation, with other cases still under review.
Traders are expected to remain cautious until a comprehensive post-analysis has been provided. Wrapped tokens and synthetic stablecoins faced the highest parity losses, leading to traders’ margins dropping as much as 50% within minutes.
ETH monthly futures absorbed the shock in under two hours, swiftly returning to the necessary 5% premium indicative of a neutral market. Consequently, the decreased interest in leveraged long positions in perpetual contracts likely signifies weak product design rather than a strong bearish sentiment.
This distortion in the derivatives market may last until market makers regain confidence, a recovery that could take weeks or months and should not be interpreted as a bearish signal for ETH’s momentum.
The options market for Ether on Deribit displayed no indications of stress or unusual demand for bearish strategies. Trading volumes over the weekend remained stable, with slightly lower activity in put (sell) options compared to call (buy) options, indicating a balanced and healthy market.
This data alleviates concerns about a coordinated cryptocurrency market crash. A significant increase in options volume would likely have occurred if traders had anticipated a major price drop. Thus, whatever caused the cascading liquidations and instability in ETH derivatives markets took traders completely by surprise.
ETH historical performance, spot ETFs, and derivatives distinguish themselves from competitors
Significantly, several major altcoins saw intraday corrections far exceeding Ether’s 20.7%, with extreme drops such as SUI (SUI) at 84%, Avalanche (AVAX) at 70%, and Cardano (ADA) at 66%. Ether has declined 5% in the past 48 hours, while most other competitors remain approximately 10% below their pre-crash levels.
Related: Analysis of USDe ‘depeg’ on Binance points to coordinated attack and oracle issues
Ether’s detachment from the broader altcoin market underscores the support from its $23.5 billion in spot exchange-traded funds and $15.5 billion in open interest in options markets. Even as rivals like Solana (SOL) enter the spot ETF competition, Ether’s established network effects and resilience during volatile times continue to position it as the leading altcoin for institutional investment.
The outlook for Ether remains positive as trust in derivatives frameworks gradually returns, supporting a possible recovery towards the $4,500 resistance level.
This article is for informational purposes only and should not be perceived as legal or investment advice. The views and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
