Watch out below! Ethereum derivatives data hints at further declines in ETH.

Ether (ETH) is down 38% in three weeks and its current $2,000 level is 59% below its all-time high of $4,870 reached in November 2021. Coinbase, the largest US exchange, reported a loss of $430 million in the first quarter of 2022.

In its most recent 10-Q filing, Coinbase included the following disclosures:

“In the event of bankruptcy, crypto assets held on behalf of customers may be subject to bankruptcy proceedings.”

Regulatory uncertainty is also partly responsible for the sharp corrections in Ether. On May 11, a Korean daily newspaper, Kookmin, reported that the draft of the ‘Digital Asset Basic Act (DABA)’ bill, the government’s next government, had been leaked. The South Korean administration expects to introduce a regulatory framework for Initial Coin Offerings (ICOs) with a 20% tax on cryptocurrency gains over $2,100 per year.

Another factor influencing the market is investor confidence in stablecoins. On May 11th, USDTether (USDTether), the largest stablecoin by market cap, underperformed and traded below $0.99 on major exchanges. However, Tether and Bitfinex CTO Paulo Ardoino emphasized that USDT has maintained stability through several Black Swan events and “continues to process payments normally.”

Options traders are reluctant to offer downside protection.

To understand how large traders are positioned, we need to look at Ether’s futures and options market data. A 25% delta skew is a signal from arbitrage desks and market makers whenever they overcharge for bullish or bearish protection.

If those traders fear an Ethereum price crash, the skewness indicator will move above 10%. On the other hand, generalized excitation reflects a negative 10% skew. That’s why this metric is known as the Pro Trader’s Fear and Greed metric.

Ethereum 30-Day Option 25% Delta Skew: Source:

The skewness indicator was above 10% since April 23rd and soared to 29% on May 12th. In addition to a signal of extreme fear to option traders, the indicator has reached its registered high.

The past three weeks have shown a marked deterioration in sentiment and the current 27% delta skewness shows a clear disproportionate risk of unexpected ups and downs price movements.

Relevant: Untethered – Everything you need to know about TerraUSD, Tether and other stablecoins.

Long-term data confirms that traders are avoiding risk.

Top traders’ net long-short ratios exclude external factors that may affect specific derivatives. By analyzing the spot, perpetual and futures contracts of these top clients, you can better understand whether professional traders are trending bullish or bearish.

There are occasional methodological inconsistencies between the different exchanges, so viewers should monitor for changes instead of absolute numbers.

2fe2fe2f 016a 45c0 a3be 7f4d3c29510c
The exchange’s top trader Ether short-term ratio. Source: Coin Glass

Ether has plummeted 29% since March 11, hitting a low of $1,700, but short- and long-term indicators show professional traders have reduced their bullish bets. OKX’s top trader ratio has decreased from 1.25 to its current 0.85 level.

Binance data also shows that these traders cut the long from 1.03 to 0.98, while on Huobi it remained unchanged at 1.00. This is a sign of little buying activity from whales and market makers amid a sharp correction in Ether prices.

There is no way to sugarcoat Ether’s current derivatives data, as both indicators reflect the lack of confidence of professional investors. Options traders overcharging for downside protection suggests Ether could drop below $1,700 depending on risk indicators.

The views and opinions expressed herein are solely Author It does not necessarily reflect the views of Cointelegraph. All investments and trading are subject to risk. You should do your own research when making a decision.

Leave a Comment