Ether (ETH) traders were taken aback as the price neared the $3,500 mark on June 11, resulting in the liquidation of $90 million in ETH leveraged longs within a span of 48 hours. While the drop was mainly influenced by macroeconomic factors such as a revised outlook from the U.S. central bank and data on U.S. jobless claims, Ether investors have now turned bearish, evident through two key metrics.
The Federal Reserve’s projections played a role in the weakness of ETH prices. On June 12, the U.S. Federal Reserve revealed its interest rate forecasts, with four officials predicting no changes until the end of 2024. The remaining 15 officials were divided, expecting either one or two cuts by the end of the year. This news disappointed risk-on investors as it reduced the appeal of moving away from fixed-income assets. However, Fed Chair Jerome Powell emphasized that the labor market and price stability would continue to guide monetary policy decisions.
On June 13, the U.S. Labor Department reported a surge in Americans filing for new unemployment benefits, reaching a 10-month high of 242,000 the previous week. Senior U.S. economist Oliver Allen from Pantheon Macroeconomics mentioned to Yahoo Finance, “High long-term rates, tight credit conditions, and a gradual softening in demand are starting to weigh more heavily on businesses, particularly small companies.”
Weak macroeconomic indicators are typically positive for risk-on assets like Ether, as they could prompt the Fed to consider interest rate cuts sooner if economic weaknesses persist. However, there is no guarantee that investors will turn to alternative assets like cryptocurrencies in a challenging economic environment, and the absence of a U.S. spot Ether exchange-traded fund (ETF) adds to the uncertainty.
According to Fox Business reporter Eleanor Terrett, Gary Gensler, chair of the U.S. Securities and Exchange Commission, has suggested that it may take up to three months to approve the S-1 filings for individual Ether ETFs. This delay is one reason why investors are becoming more cautious about buying bullish ETH derivatives, along with factors like a decline in decentralized application activity.
The delta skew measures the demand for bullish versus bearish options, with a negative skew indicating a higher demand for call options (buy) and a positive skew suggesting a preference for put options (sell). Neutral markets typically have a delta skew ranging from -7% to +7%, indicating balanced pricing between call and put options.
Between June 11 and June 12, the Ether 25% delta skew entered bullish territory as it fell below -7%. However, this positive sentiment waned on June 13 after Ether failed to sustain above the $3,600 mark, causing traders to price in similar probabilities of positive and negative ETH price movements.
Retail traders often choose perpetual futures, a derivative that closely mirrors the price movements of the underlying spot markets. Exchanges charge a fee every eight hours, known as the funding rate, to manage balanced risk exposure. This rate becomes positive when buyers (longs) demand more leverage and turns negative when sellers (shorts) require additional leverage.
Currently, the Ether perpetual funding rate has stabilized at 0.01% per eight-hour period, equivalent to 0.2% per week. This rate is generally considered neutral, especially since periods of increased activity can push the weekly cost for leveraged long positions up to 1.2%. Notably, the funding rate was at 0.035% per week on June 6, indicating a decline in sentiment over the past week.
Despite the potential catalyst of an upcoming U.S. spot ETF and macroeconomic data signaling a weakening job market, Ether derivatives have been unable to maintain elevated levels of optimism. This suggests that the likelihood of ETH surpassing $3,700 in the near future has diminished.
This article serves as general information and should not be construed as legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.