Ether (ETH) experienced a significant decline of 10% on March 15, reaching its lowest point in over a week at $3,567. This drop led to forced liquidations worth $126 million in ETH futures. Investors are now questioning whether this signifies a shift away from the recent bullish trend and contemplating the possibility of revisiting the $4,090 level observed on March 12. The answer to this question may lie in the demand for Ether derivatives.
Ether’s decline on March 15 mirrored the drops seen in Bitcoin (BTC) and the broader cryptocurrency market, indicating no significant underperformance compared to the overall sector. Similarly, the S&P 500 index dropped by 1.1% after nearly reaching a new all-time high of 5,257 on March 14. However, this doesn’t necessarily imply a corresponding sentiment among ETH investors.
Some experts believe that the movement to take profits is not exclusive to the crypto markets, as evidenced by the U.S. 2-year Treasury yield reaching 4.73% on March 15, its highest level in over three months. An increase in yield on fixed incomes suggests selling pressure as investors seek higher returns on these assets. Therefore, whether cryptocurrencies are seen as risky investments or scarce alternatives, traders are turning to cash for security.
Investors are concerned that the U.S. Federal Reserve (Fed) might maintain interest rates at 5.25% longer than initially anticipated due to recent data on consumer inflation (CPI) and the producer price index slightly exceeding expectations. This prospect exerts downward pressure on the economy and favors fixed-income investments.
Thierry Wizman, a global FX and rates strategist at Macquarie, noted that the market is too frothy, suggesting that the Fed may believe higher long-term interest rates are necessary.
Despite the current volatility and uncertainty in global economies, Ether’s year-to-date rise of 57% in 2024 should be viewed as a vote of confidence. However, given the typically short-term outlook of crypto investors, it is crucial to examine the ETH futures and options markets to determine if the bullish momentum has diminished following the recent 10% price drop.
Ether derivatives show no signs of stress or a change in trend. Perpetual contracts, also known as inverse swaps, have a recalculated embedded rate every eight hours. A positive funding rate indicates a higher demand for leverage from traders holding long positions.
Data reveals that ETH funding rates have consistently remained above 0.03% per eight-hour period, equivalent to 0.6% weekly. When traders are excessively optimistic about a bull market, these rates can surge above 2.1% per week. Thus, it is evident that traders involved in perpetual futures did not shift to a bearish stance during the March 15 correction.
To determine if traders were caught off guard and are now holding long positions at a loss, it is crucial to analyze the balance between call (buy) and put (sell) options. An increase in the demand for put options typically indicates that traders are preparing for neutral to bearish price movements.
Over the past 10 days, the demand for Ether call options has exceeded that for protective puts by an average margin of 60%. This ratio can be considered neutral, especially since crypto traders tend to favor bullish positions. Therefore, there is no indication that the Ether derivatives market suffered significantly when the ETH price temporarily dropped by 10% on March 15. Based on the current state of Ether futures and options, the bull market appears to be unaffected, with indicators pointing towards continued health.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making a decision.