Key takeaways:
ETH’s perpetual contract distortions are diminishing, with monthly futures indicating neutral conditions and a decline in short-term market anxiety.
Options markets demonstrate a balanced demand for both bullish and bearish strategies, signifying a robust derivatives market.
ETH outperformed most altcoins during the crash and in the subsequent 48 hours, underscoring its relative strength and bullish momentum.
Ether (ETH) price rebounded to the $4,100 level on Sunday, alleviating some of the distress from Friday’s 20.7% flash crash. The $3.82 billion in leveraged long liquidations had a considerable impact on ETH derivatives markets, but four factors suggest that Ether’s recovery from the $3,750 support may have concluded this short-term correction.
The funding rate on ETH perpetual futures plummeted to -14%, indicating that short (bearish) traders are incurring costs to maintain their positions—an unsustainable situation over the long term. This atypical scenario likely reflects rising concerns that certain market makers or even exchanges may be experiencing solvency issues. Regardless of the validity of these concerns, traders typically exercise greater caution until confidence is fully reestablished.
ETH derivatives signal return to stability despite marketwide uncertainty
Uncertainty remains regarding whether exchanges will reimburse clients for mismanagement related to cross-collateral margin and oracle pricing. Binance has so far committed $283 million in compensation, with other cases still under review.
Traders are expected to remain cautious until a thorough post-mortem has been released. Wrapped tokens and synthetic stablecoins faced the most significant parity losses, leading to traders’ margins dropping up to 50% in mere minutes.
ETH monthly futures absorbed the shock in under two hours, swiftly regaining the minimum 5% premium necessary for a neutral market. Consequently, the lack of demand for leveraged long positions in perpetual contracts seems to reflect subpar product design rather than a strong bearish inclination.
This distortion within the derivatives market may linger until market makers regain their confidence, a process that could extend over weeks or even months, and should not be interpreted as a negative signal for ETH’s momentum.
Ether options markets on Deribit exhibited no signs of distress or unusual demand for bearish strategies. Trading volumes over the weekend remained consistent, and the activity in put (sell) options was slightly lower than in call (buy) options, indicating a balanced and healthy market.
This data alleviates concerns regarding a coordinated cryptocurrency market crash. A significant surge in options volume would likely have occurred if traders were anticipating a major price decline. Thus, whatever instigated 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 faced intraday corrections much more severe than Ether’s 20.7%, with extreme declines seen in SUI (SUI) at 84%, Avalanche (AVAX) at 70%, and Cardano (ADA) down 66%. Ether has decreased 5% over the past 48 hours, while most competitors hover approximately 10% below their pre-crash values.
Related: Explanations of USDe ‘depeg’ on Binance focus on coordinated attack, oracles
Ether’s divergence from the broader altcoin market showcases the backing provided by its $23.5 billion in spot exchange-traded funds and $15.5 billion in open interest within options markets. Even if Solana (SOL) and other contenders enter the spot ETF arena, Ether’s established network effects and resilience during volatile periods continue to solidify its position as the premier altcoin for institutional investment.
Ether’s outlook stays positive as confidence in derivatives structures gradually returns, potentially paving the way for a recovery towards the $4,500 resistance level.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
