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Bitcoin and Ethereum had a rough week, but derivatives data reveals a silver lining

BTC, ETH and altcoin prices were crushed this week, but the futures funding rate shows retail traders are not ready to become permabears.

This week the crypto market endured a sharp drop in valuation after Coinbase, the leading U.S. exchange, reported a $430 million quarterly net loss and South Korea announced plans to introduce a 20% tax on crypto gains.

During its worst moment, the total market crypto market cap faced a 39% drop from $1.81 trillion to $1.10 trillion in seven days, which is an impressive correction even for a volatile asset class. A similar size decrease in valuation was last seen in February 2021, creating bargains for the risk-takers.

Total crypto market capitalization, USD billion. Source: TradingView

Even with this week’s volatility, there were a few relief bounces as Bitcoin (BTC) bounced 18% from a $25,400 low to the current $30,000 level and Ether (ETH) price also made a brief rally to $2,100 after dropping to a near-year low at $1,700.

Institutional investors bought the dip, according to data from the Purpose Bitcoin ETF. The exchange-traded instrument is listed in Canada and it added 6,903 BTC on May 12, marking the largest single-day buy-in ever registered.

On May 12, the United States Treasury Secretary Janet Yellen stated that the stablecoin market is not a threat to the country’s financial stability. In a hearing of the House Financial Services Committee, Yellen added:

“They present the same kind of risks that we have known for centuries in connection with bank runs.”

The total crypto capitalization down 19.8% in seven days

The aggregate market capitalization of all cryptocurrencies shrank by 19.8% over the past seven days, and it currently stands at $1.4 trillion. However, some mid-capitalization altcoins were decimated and dropped more than 45% in one week.

Below are the top gainers and losers among the 80 largest cryptocurrencies by market capitalization.

Weekly winners and losers among the top-80 coins. Source: Nomics

Maker (MKR) benefited from the demise of a competing algorithmic stablecoin. While TerraUSD (UST) succumbed to the market downturn, breaking its peg well below $1, Dai (DAI) remained fully functional.

Terra (LUNA) faced an incredible 100% crash after the foundation responsible for administering the ecosystem reserve was forced to sell its Bitcoin position at a loss and issue trillions of LUNA tokens to compensate for its stablecoin breaking below $1.

Fantom (FTM) also faced a one-day 15.3% drop in the total value locked, the amount of FTM coins deposited on the ecosystem’s smart contracts. Fantom has been struggling since prominent Fantom Foundation team members Andre Cronje and Anton Nell resigned from the project.

Tether premium shows trickling demand from retail traders

The OKX Tether (USDT) premium indirectly measures retail trader crypto demand in China. It measures the difference between China-based USDT peer-to-peer trades and the official U.S. dollar currency.

Excessive buying demand puts the indicator above fair value, which is 100%. On the other hand, Tether‘s market offer is flooded during bearish markets, causing a 2% or higher discount.

Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX

Currently, the Tether premium stands at 101.3%, which is slightly positive. Furthermore, there has been no panic over the past two weeks. Such data indicate that Asian retail demand is not fading away, which is bullish, considering that the total cryptocurrency capitalization dropped 19.8% over the past seven days.

Related: What happened? Terra debacle exposes flaws plaguing the crypto industry

Altcoin funding rates have also dropped to worrying levels. Perpetual contracts (inverse swaps) have an embedded rate that is usually charged every eight hours. These instruments are retail traders‘ preferred derivatives because their price tends to perfectly track regular spot markets.

Exchanges use this fee to avoid exchange risk imbalances. A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

Seven-day accumulated perpetual futures funding rate. Source: Coinglass

Notice how the accumulated seven-day funding rate is mostly negative. This data indicates higher leverage from sellers (shorts). As an example, Solana‘s (SOL) negative 0.90% weekly rate equals 3.7% per month, a considerable burden for traders holding futures positions.

However, the two leading cryptocurrencies did not face the same leverage selling pressure, as measured by the accumulated funding rate. Typically, when there‘s an imbalance caused by excessive pessimism, that rate can easily move below negative 3% per month.

The absence of leverage shorts (sellers) in futures markets for Bitcoin and Ethereum and the modest bullishness from Asian retail traders should be interpreted as extremely healthy, especially after a -19.8% weekly performance.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Any dip buyers left? Bulls are largely absent as the total crypto market cap drops to $1.65T

Weak retail demand and bearish derivatives data reflect a dismal short-term outlook for the crypto market.

The total crypto market capitalization has been trading within a descending channel for 24 days and the $1.65 trillion support was retested on May 6. The drop to $1.65 trillion was followed by Bitcoin (BTC) reaching $35,550, its lowest price in 70 days.

Total crypto market cap, USD billion. Source: TradingView

In terms of performance, the aggregate market capitalization of all cryptocurrencies dropped 6% over the past seven days, but this modest correction in the overall market does not represent some mid-capitalization altcoins, which managed to lose 19% or more in the same time frame.

As expected, altcoins suffered the most

In the last seven days, Bitcoin price dropped 6% and Ether (ETH) declined by 3.5%. Meanwhile, altcoins experienced what can only be described as a bloodbath. Below are the top gainers and losers among the 80 largest cryptocurrencies by market capitalization.

Weekly winners and losers among the top 80 coins. Source: Nomics

Tron (TRX) rallied 26.9% after TRON DAO rolled out a USDD, a decentralized stablecoin, on May 5. The algorithmic stablecoin is connected to the Ethereum and BNB Chain (BNB) through the BTTC cross-chain protocol.

1inch (1INCH) gained 5.6% after the decentralized exchange governance application became Polygon’s (MATIC) network leader by completing 6 million swaps on the network.

STEPN (GMT), the native token of the popular move-to-earn lifestyle app, declined 35.7%, adjusting after a 70% rally between April 18 and April 28. A similar movement happened to Apecoin (APE) after the token pumped 94% between April 22 and April 28.

The Tether premium flipped negative on May 6

The OKX Tether (USDT) premium gauges China-based retail demand and it measures the difference between the China-based peer-to-peer trades and the United States dollar.

Excessive buying demand puts the indicator above fair value at 100%. On the other hand, Tether’s market offer is flooded during bearish markets, causing a 4% or higher discount.

Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX

The OKX Tether premium peaked at 1.7% on April 30, indicating some excess demand from retail. However, the metric reverted to a 0% premium over the next five days.

More recently, in the early hours of May 6, the OKX Tether premium flipped to -1% negative. Data shows retail sentiment worsened as Bitcoin moved below $37,000.

Futures markets show mixed sentiment

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

Accumulated 7-day perpetual futures funding rate. Source: Coinglass

As shown above, the accumulated seven-day funding rate is slightly positive for Bitcoin and Ether. Data indicates slightly higher demand from longs (buyers), but nothing that would force traders to close their positions. For instance, a positive 0.15% weekly rate equals 0.6% per month, thus unlikely to cause harm.

On the other hand, altcoins’ 7-day perpetual futures funding rate was -0.30%. This rate is equivalent to 1.2% per month and indicates higher demand from shorts (sellers).

Signs of weak retail demand as indicated by OKX Tether data and the negative funding rate on altcoins are a signal that traders are unwilling to buy at the critical $1.65 trillion crypto market capitalization. Buyers seem to be waiting for further dips before stepping in, so further price corrections will likely follow.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Ethereum derivatives data shows pro traders are bearish, but for how long?

The ETH futures premium turned bearish and the network’s TVL dropped 22% from its peak, but how is this impacting pro traders’ sentiment?

Ether (ETH) lost the critical $3,000 psychological support level on April 11 after a 16% weekly negative performance. Bulls were definitively caught by surprise as $104 million in leveraged long futures got liquidated on April 11. Ether’s downturn also followed a decline in the total value locked (TVL) in Ethereum smart contracts. 

Ethereum network TVL in ETH. Source: Defi Llama

The metric peaked at 40.6 million Ether on Jan. 27, and has since dropped by 22%. This indicator could partially explain why Ether could not withstand the adversity brought by Bitcoin’s (BTC) 13% weekly negative move.

However, the leading altcoin has catalysts of its own because Ethereum developers implemented the network’s first-ever “shadow fork” on April 11. The testnet update created an area for developers to stress-test their assumptions around the network’s complex shift to proof-of-stake.

More importantly, one needs to analyze how professional traders are positioning themselves and there’s no better gauge than derivatives markets.

The futures premium is back to bearish levels

To understand whether the current bearish trend reflects top traders’ sentiment, one should analyze Ether’s futures contracts premium, also known as a “basis.” Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges.

A trader can gauge the market sentiment by measuring the expense gap between futures and the regular spot market. A neutral market should present a 5% to 12% annualized premium (basis) as sellers request more money to withhold settlement longer.

Ether 3-month futures premium. Source: laevitas.ch

The above chart shows that Ether’s futures premium stood above the 5% neutral threshold between March 25 and April 6, but later weakened to 3%. This level is typically associated with fear or pessimism because futures market traders are reluctant to open leveraged long (buy) positions.

Long-to-short data confirms worsening conditions

The top traders’ long-to-short net ratio excludes externalities that might have impacted the longer-term futures instruments. By analyzing these whale positions on the spot, perpetual and futures contracts, one can better understand whether professionals effectively become bearish.

Exchanges’ top traders Ether long-to-short ratio. Source: Coinglass

Firstly, one should note the methodological discrepancies between different exchanges, so the absolute figures have lesser importance. Yet, since April 5, there has been a considerable decline in the long-to-short ratio of every major derivatives exchange.

Data signals that whales have been increasing their bearish bets over the past week. For instance, the Binance whales held a 1.05 long-to-short ratio on April 5, but gradually reduced it to 0.88. Furthermore, the OKX top traders moved from a 2.11 favoring longs to the current 1.35.

Related: Kava turns bullish as Ethereum Co-Chain launch initiates push toward EVM compatibility

Are investors and users abandoning the network?

From the perspective of the metrics discussed above, there might not be an indicator pointing to extreme bearishness but the futures basis rate and the top traders’ long-to-short ratio worsened over the past week.

Furthermore, the TVL in Ethereum smart contracts signals a decline in use. The constant delays in the proof-of-stake migration could be pulling investors’ attention away and driving decentralized finance (DeFi), gaming, and nonfungible (NFT) projects to competing networks. In turn, traders have been focusing their attention on more promising altcoins and consequently diminishing the demand for Ether.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Bitcoin price drops to $43.5K, but data and BTC’s market structure project strength

BTC price took a sharp tumble below a key support level, but data shows April 6’s dip could be another buying opportunity for bulls.

Bitcoin (BTC) has been struggling to break the $47,000 resistance and even with April 6’s drop below $44,000, there is still mounting evidence that the market structure is healthy. 

On Dec. 3, 2021, Bitcoin initiated a 25.6% correction that lasted 18 hours and culminated with a $42,360 low. Four months later, the price remained 18% below the $56,650, closing on Dec. 2, 2021.

Much has changed over that period, and hard evidence comes from other sections of the sector. Between February 15 and April 2, 2022, enterprise software development firm MicroStrategy announced the acquisition of 4,197 Bitcoin.

Inflows to Canadian Bitcoin exchange-traded funds (ETFs) also hit an all-time high, according to data from Glassnode. These investment vehicles in Canada have increased their holdings by 6,594 BTC since January to a historical high of 69,052 BTC under management. The Purpose Bitcoin ETF, a spot instrument, currently has $1.68 billion worth of assets.

Among the wave of recent buyers is Terra’s Luna Foundation Guard (LFG), which is on a mission to acquire $3 billion worth of BTC as a reserve for TerraUSD (UST) stablecoin.

CoinMetrics data shows that the active on-year Bitcoin supply reached 36.8% on April 5, its lowest level since September 2010.

Bitcoin trailing 1-year active supply. Source: CoinMetrics

The chart shows how “diamond hand” holders have not moved their coins over the past 12 months.

Futures markets show traders are uncomfortable near $47,000

To understand how professional traders are positioned, including whales and market makers, let’s look at Bitcoin’s futures and options market data. The basis indicator measures the difference between longer-term futures contracts and the current spot market levels.

The Bitcoin futures annualized premium should run between 5% to 12% to compensate traders for “locking in” the money for two to three months until the contract expiry. Levels below 5% are extremely bearish, while the numbers above 12% indicate bullishness.

Bitcoin 3-month futures annualized premium. Source: Laevitas.ch

The above chart shows that this metric dipped below 5% on Feb. 11, reflecting traders’ lack of demand for leverage long (bull) positions. The sentiment changed on March 26 after the basis rate regained the “neutral” 5% threshold. Even though this occurred, there are no signs of confidence from pro traders, according to the futures premium.

Options traders worry about downside risk

Currently, Bitcoin seems to lack the strength needed to break the $47,000 resistance, but traders should use derivatives to gauge professional investor sentiment. The 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge for upside or downside protection.

If those traders fear a Bitcoin price crash, the skew indicator will move above 10%. On the other hand, generalized excitement reflects a negative 10% skew.

Bitcoin 30-day options 25% delta skew: Source: Laevitas.ch

Data shows that the skew indicator has been ranging between 0% and 8% since March 9. Albeit not signaling fear, these options traders are overcharging for downside protection. From the BTC options markets perspective, there’s a slightly higher risk for unexpected downward price swings.

The neutral-to-bearish Bitcoin derivatives data offers an interesting opportunity for bulls. If somehow the $47,000 resistance is broken, this will be a surprise for most investors. Two positive effects will arise from that event: a short squeeze from derivatives markets and room for buyers to use futures for leverage.

If Bitcoin’s futures premium had been running above 10%, traders would face a much higher cost to add long (bull) positions. Bulls seem better prepared to deal with the $47,000 price resistance considering the sound market structure that is marked by the absence of exaggerated buyers’ leverage and this provides better odds of success.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Traders predict $3,800 Ethereum, but multiple data points suggest otherwise

Is it time for a correction after ETH rallied 34% in two weeks? On-chain metrics and derivatives data say yes.

Investors tend not to complain about a price rally, except when the chart presents steep downside risks. For example, analyzing Ether’s (ETH) current price chart could lead one to conclude that the ascending channel since March 15 is too aggressive.

Ether price at FTX, in USD. Source: TradingView

Thus, it is only natural for traders to fear that losing the $3,340 support could lead to a retest of the $3,100 level or a 12% correction down to $3,000. Of course, this largely depends on how traders are positioned along with the Ethereum network’s on-chain metrics.

For starters, the Ethereum network’s total value locked (TVL) peaked at ETH 32.8 million on Jan. 23 and has since gone down by 20%. TVL measures the number of coins deposited on smart contracts, including decentralized finance (DeFi), gaming, NFT marketplaces, social networks, collectibles and high risk.

Moreover, the Ethereum network’s average transaction fee bottomed at $8 on March 16 but has recently increased to $15. Thus, one must evaluate if that reflects a lesser use of decentralized applications (DApps) or users benefiting from layer-2 scaling solutions.

Ether’s futures premium shows little excitement

Traders should analyze Ether futures market data to understand how professional traders are positioned. The quarterly contracts are whales and market makers’ preferred instruments because they avoid the fluctuating funding rate of the perpetual futures.

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. The Ether futures annualized premium should run between 5% to 12% to compensate traders for “locking in” the money for two to three months until the contract expiry.

Ether 3-month futures annualized premium. Source: Laevitas.ch

The current 6% Ether futures basis sits slightly above the minimum threshold for a neutral market. An annualized futures premium below 5% is deemed bearish, while numbers above 12% indicate bullishness.

This data tells us that pro traders are far from excited but in the past couple of months, there was a 4% or lower basis rate, which reflected bearish sentiment. Thus, there has been an improvement, but not enough to cause an excessive demand from buyers.

To exclude externalities that might have influenced derivatives data, one should analyze the Ethereum network’s on-chain data. For example, monitoring the network use tells us whether actual use cases support the demand for Ether.

On-chain metrics raise concerns

Measuring the number of active addresses on the network provides a quick and reliable indicator of effective use. Of course, this metric could be misguided by the increasing adoption of layer-2 solutions, but it works as a starting point.

7-day average of active addresses on Ethereum. Source: CoinMetrics

The current 593,260 daily active addresses average is a 2% increase from 30 days ago, but it’s nowhere near the 857,520 seen in May 2021. Data shows that Ether token transactions are not showing signs of growth, at least on the primary layer.

Traders should proceed to DApp usage metrics but avoid exclusive focus on the TVL because that metric is heavily concentrated on lending platforms and decentralized exchanges (DEX), so gauging the number of active addresses provides a broader view.

Ethereum network 30-day DApps activity. Source: DappRadar

Ethereum DApps saw an average monthly 11% decrease in active addresses. Overall, the data is disappointing because the smart contract network was specifically designed to host decentralized applications.

As a comparison, the DApps on the Polygon network gained 12% while Solana (SOL) saw a 6% user increase. Unless there is decent growth in Ether transactions and DApp usage, the $3,340 daily close support will probably unwind.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

2 metrics signal traders do not expect $2T crypto market cap anytime soon

Despite only one coin among the top 80 declining over the past week, Tether and futures premiums show a lack of excitement in the market.

Cryptocurrencies failed to break the 42-day long downtrend after the $1.95-trillion capitalization resistance was rejected on March 20. Even though Bitcoin (BTC) gained a modest 3.7% over the past seven days, altcoins presented a robust rally.

Crypto markets’ aggregate capitalization showed a 6.2% increase to $1.92 trillion between March 14 and 21. Such performance was positively impacted by Ether’s (ETH) 14% gains, Cardano (ADA) increasing 13%, and Solana (SOL) gaining 10%.

Total crypto market cap, USD billion. Source: TradingView

While those assets were not the biggest weekly gains among the top 80 coins, Ether may have fueled investors’ expectations after Glassnode’s on-chain data showed that ETH balances on crypto exchanges reached their lowest levels since 2018.

Comparing the winners and losers provides skewed results, as only two names presented negative performances over the past seven days:

Weekly winners and losers among the top 80 coins. Source: Nomics

Ethereum Classic (ETC) rallied 51% after the HebeSwap decentralized exchange application surpassed $290 million in total value locked. With liquidity pools growing on the protocol, Ethereum Classic appears to have a decentralized finance hub of its own.

Aave gained 35% following its v3 liquidity pool upgrade on March 16, adding cross-chain asset functionality, a community contribution tool, and a gas optimization model. Several wallet-based decentralized applications will be integrated, including Instadapp, DeBank, 1inch, ParaSwap, Zapper, DeFi Saver, Zerion and more.

Kusama (KSM) gained 31% after Parity Technology confirmed that it would enable parachain (sidechain) swaps on the upcoming 0.9.18 release. Moreover, Manta Network’s on-chain privacy Dolphin Testnet reached 30,000 transactions on March 14.

Tether premium shows slight discomfort

The OKX Tether (USDT) premium is a good gauge of China-based retail trader crypto demand. It measures the difference between China-based peer-to-peer trades and the United States dollar.

Excessive buying demand tends to pressure the indicator above fair value at 100%, and during bearish markets, Tether’s market offer is flooded, causing a 4% or higher discount.

Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX

Currently, the Tether premium stands at 99.9%, its lowest level since March 3. While distant from retail panic selling, the indicator showed a modest deterioration over the past week.

Still, weaker retail demand is not worrisome, as it partially reflects the total cryptocurrency capitalization, which is down 46% year-to-date.

Related: ‘No more 4-year cycles’ — 5 things to know in Bitcoin this week

Futures markets show mixed sentiment

Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

Accumulated perpetual futures funding rate on March 21. Source: Coinglass

As depicted above, the accumulated seven-day funding rate is slightly positive for Bitcoin and Ether. This data indicates slightly higher demand from longs (buyers), but it is insignificant. For example, Solana’s positive 0.20% weekly rate equals 0.8% per month, which should not be a concern for most futures traders.

On the other hand, both Terra (LUNA) and Polkadot (DOT) futures showed slightly more demand from shorts (sellers). Thus, the absence of Tether demand in Asia and mixed perpetual contract premiums signal a lack of confidence from traders despite the recent price gains.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Ethereum price holds above $3K but network data suggests bulls may get trapped

ETH price just broke from a long-term descending channel, but on-chain data still points to a few bearish catalysts.

When analyzing Ether’s (ETH) price chart, one could conclude that the 3-month long bearish trend has been broken for a few reasons. The current $3,100 price range represents a 43% recovery in 15 days and, more importantly, the descending channel resistance was ruptured on Feb. 7. 

Should Ether bulls start celebrating and calling for $4,000 and higher? That largely depends on how retail traders are positioned, along with the Ethereum network’s on-chain metrics. For instance, is the $30-plus transaction fee impacting the use of decentralized applications (dApps), or are there any other factors that will prohibit Ether’s price growth?

Ether (ETH) price at FTX, in USD. Source: TradingView

Since the 55.6% correction from the $4,870 all-time high to the cycle bottom at $2,160 on Jan. 24, Bitcoin (BTC) has failed to break the $45,500 resistance and traders concluded that a 12% correction was the most likely scenario.

On a brighter note, on Feb. 7, Big Four auditor KPMG’s Canadian wing announced the addition of Bitcoin and Ether to its corporate treasury. The decision reflects KPMG Canada’s belief that cryptocurrencies are a “maturing asset class,” according to Benjie Thomas, a managing partner for the firm.

Derivatives data tells a different story

To understand how confident traders are about Ether’s price recovery, one should analyze the perpetual contracts futures data. This instrument is the retail traders’ preferred market because its price tends to track the regular spot markets.

In any futures contract trade, longs (buyers) and shorts (sellers) are matched at all times, but their use of leverage varies. Consequently, exchanges will charge a funding rate to whichever side demands more leverage, and this fee is paid to the opposing side.

Ether perpetual futures 8-hour funding rate. Source: Coinglass

This indicator will tell us whether retail traders are getting excited, which would cause it to move above 0.05%, equivalent to 1% per week. Notice how the past couple of months showed a slightly negative funding rate, reflecting the bearish sentiment. Currently, there is no sign that retail traders are confident enough to reopen leveraged long positions.

One should analyze the Ethereum network’s on-chain data to understand if the lack of confidence is specific to leverage trading. For example, even though there is no set relation between Ether’s price and network use, low transaction volume and a decline in active users could be a concern if decoupled from a price hike.

On-chain metrics raise concern

Measuring the monetary value of the ETH transacted on the network provides a reliable indicator of effective use. Of course, this metric could be masqueraded by increasing adoption in layer-2 solutions but it remains a starting point.

Sum of native token units transferred per day. Source: CoinMetrics

The current $6.2 billion daily transaction average is a 55% drop from December’s peak and not really far from the 1-year low at $5.6 billion. Thus, it is safe to conclude that Ether token use is not showing signs of growth, at least on the primary layer.

Analysts should also check decentralized applications usage metrics. One must remember that the Total Value Locked (TVL) is heavily concentrated on lending platforms and decentralized exchanges (DEX). Consequently, gauging the number of active addresses provides a broader view.

Ethereum network 30-day dApps activity. Source: DappRadar

Apart from the non-fungible token (NFT) marketplace Opensea, Ethereum dApps saw a monthly 28% decrease in the number of active addresses. In a nutshell, that is disappointing usage data because the smart contract network was specifically designed to host decentralized applications.

Unless there’s an uptick in Ether transactions and dApps usage metrics, investors will interpret any Ether price move above $3,000 as a potential bull trap. As for retail traders’ neutral funding rate, it might as well be a bullish sign that the investor class typically enters long leverage positions after a strong rally.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Crypto derivatives data signals improving investor sentiment and a possible trend reversal

Money is trickling back into the crypto market and derivatives data suggests that investor confidence is improving as the market forms a bottom.

This week the total crypto market capitalization rallied 10% to $1.68 trillion, which is a 25% recovery from the Jan. 24 bottom. It’s too early to suggest that the market has found a bottom but two key indicators — The Tether/CNY premium and CME futures basis — have recently flipped bullish, signaling that positive investor sentiment is backing the current price recovery.

Total crypto market cap excluding stablecoins, in USD billion. Source: TradingView

Traders should not assume that the bear trend has ended by merely looking at price charts. For example, between Dec. 13 and Dec. 27, the sector’s total market capitalization bounced from a $1.9 trillion low to $2.33 trillion. Yet, the 22.9% recovery was completely erased within nine days as crypto markets tanked on Jan. 5.

Bearish data suggests the Fed has less room for rate hikes

Even with the current trend change, bears have reason to believe that the 3-month long descending channel formation has not been broken. For example, the Feb.4 rally could have reflected the recent negative macroeconomic data, including EuroZone retail sales 2% yearly growth in December, which was well below the 5.1% market expectation.

Independent market analyst Lyn Alden recently suggested that the United States Federal Reserve could postpone interest rate hikes after disappointing U.S. employment data was released on Feb. 2. The ADP Research Institute also showed a contraction of 301,000 private-sector jobs in December, which is the worst figure since March 2020.

Regardless of the reason for Bitcoin (BTC) and Ether (ETH) gaining 10% on Friday, the Tether (USDT) premium at OKX reached its highest level in four months. The indicator compares China-based peer-to-peer (P2P) trades and the official U.S. dollar currency.

Peer-to-peer CNY/USDT vs. CNY/USD. Source: OKX

Excessive cryptocurrency demand tends to pressure the indicator above fair value, or 100%. On the other hand, bearish markets tend to flood Tether’s market, causing a 4% or higher discount. Therefore, Friday’s pump had a significant impact on China-driven crypto markets.

CME futures traders are no longer bearish

To further prove that the crypto market structure has improved, traders should analyze the CME’s Bitcoin futures contracts premium. The metric compares longer-term futures contracts and the traditional spot market price.

It is an alarming red flag whenever that indicator fades or turns negative (backwardation) because it indicates that bearish sentiment is present.

These fixed-calendar contracts usually trade at a slight premium, indicating that sellers are requesting more money to withhold settlement for longer. As a result, the 1-month futures should trade at a 0.5% to 1% annualized premium in healthy markets, a situation known as contango.

BTC CME 1-month forward contract premium vs. Coinbase/USD. Source: TradingView

The chart above shows how the indicator entered backwardation levels on Jan. 4 as Bitcoin moved below $46,000 and Friday’s move marks the first sentiment trend reversal in a month.

Data shows that institutional traders remain below the “neutral” threshold as measured by the futures’ basis, but at least reject the bearish market structure formation.

While the CNY/Tether premium might have shown a trend shift, the CME premium reminds us that there’s a lot of distrust in Bitcoin’s capacity to function as an inflationary hedge. Still, the lack of CME traders’ excitement could be exactly what BTC needs to further fuel the rally if the $42,000 resistance is broken over the weekend.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Is the bottom in? Data shows Bitcoin derivatives entering the ‘capitulation’ zone

A key risk indicator for BTC options hit its highest level in six months, possibly signaling that $32,930 was the bottom.

Analysts love to issue price predictions and it seems that nine out of 10 times they are wrong. For example, how many times did analysts say “we will never see Bitcoin back at X price again,” only to see it plunge well below that level a few months later? 

It doesn’t matter how experienced a person is or how connected in the industry. Bitcoin’s (BTC) 55% volatility must be taken seriously and the impact this has on altcoins is usually stronger during capitulation-like movements.

For those unfamiliar with the case, on Dec. 7, Zhu Su’s Three Arrows Capital acquired $676.4 million worth of Ether (ETH) after its price collapsed 20% over 48 hours. Zhu went as far as saying that he would continue to buy “any panic dump,” despite acknowledging that Ethereum fees were unsuitable for most users.

To understand whether there is still an appetite for bearish bets and how pro traders are positioned, let’s take a look at Bitcoin’s futures and options market data.

Futures traders are unwilling to short

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets and this price gap is caused by sellers demanding more money to withhold settlement longer.

On the other hand, a red alert emerges whenever this indicator fades or turns negative, a scenario known as “backwardation.”

Bitcoin 3-month futures basis rate. Source: Laevitas.ch

Notice how the indicator held the 5% threshold despite the 52% price correction in 75 days. Had pro traders effectively entered bearish positions, the basis rate would have flipped closer to zero or even negative. Thus, data shows a lack of appetite for short positions during this current corrective phase.

Options traders are still in the “fear” zone

To exclude externalities specific to the futures instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.

The opposite holds when greed is prevalent, causing the 25% delta skew indicator to shift to the negative area.

Bitcoin 30-day options 25% delta skew. Source: Laevitas.ch

The 25% skew indicator flipped to the “fear” area as it moved above 10% on Jan. 21. That 17% peak level was last seen in early July 2021, and curiously, Bitcoin was trading at $34,000 back then.

This indicator might be interpreted as bearish when considering that arbitrage desks and market makers are overcharging for downside protection. Still, this metric is backward-looking and usually predicts market bottoms. For example, just two weeks after the skew indicator peaked at 17% on July 5, Bitcoin price bottomed at $29,300.

Correlation with traditional markets is not so relevant

It is worth noting that Bitcoin has been on a downtrend for the past 75 days, and this is before the Federal Reserve’s tightening discourse on Dec. 15. Moreover, the increased correlation with traditional markets does not explain why the S&P 500 index peaked on Jan. 4, while Bitcoin was already down 33% from the $69,000 all-time high.

Considering the lack of bears’ appetite to short BTC below $40,000 and options traders finally capitulating, Bitcoin shows little room for the downside.

Furthermore, Bitcoin futures liquidation over the past week totalled $2.35 billion, which significantly reduced buyers’ leverage. Of course, there are no guarantees that $32,930 was the final bottom, but short sellers will likely wait for a bounce before entering bearish positions.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

A key Ethereum price metric hits a 6-month low as ETH falls below $3K

ETH price has been in a downtrend for three months, and derivatives data shows pro traders are almost ready to throw in the towel.

Ether (ETH) price lost the $3,600 support on Jan. 5 as minutes from the Federal Reserve’s December Federal Open Market Committee meeting showed that the regulator was committed to decreasing its balance sheet and increasing interest rates in 2022.

Even with that looming overhead, Ethereum has problems of its own — more specifically, the ongoing $40 and higher average transaction fees. On Jan. 3, Vitalik Buterin said that Ethereum needs to be more lightweight in terms of blockchain data so that more people can manage and use it.

The concerning part of Buterin’s interview was the status of the Ethereum 2.0 upgrade, which is merely halfway implemented after six years. The subsequent roadmap phases include the “Merge” and “Surge” phases, followed by “full sharding implementation.” When implemented, they will lead to an 80% estimated completion of the network upgrade, according to Buterin.

Ether price on Coinbase, USD. Source: TradingView

For those analyzing Ether’s performance over the past t months, the current pricing seems appealing because the cryptocurrency is currently down 34% from its $4,870 all-time high. However, this short-sighted view disregards the 560% gain Ether had accrued up till Nov. 10, 2021.

Furthermore, the Ethereum network’s adjusted total value locked (TVL) has dropped by 17% since Ether’s price peak.

Ethereum network total value locked, USD. Source: Defi Llama

As shown above, the network’s TVL dropped from $166 billion to the current $138 billion. Meanwhile, competing smart contract networks have seen their TVL increase, such as Terra, which went from $11 billion to $18.7 billion. Fantom also increased the value locked on its smart contracts from $5 billion to $9 billion.

Due to network upgrade delays, worsening macroeconomic conditions and a three-month-long price correction, professional traders are clearly becoming frustrated and anxious.

Ether futures are at the edge of turning bearish

Quarterly futures are usually the preferred instruments of whales and arbitrage desks due to their settlement date and the price difference from spot markets. However, the contracts’ biggest advantage is the lack of a fluctuating funding rate.

These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers request more money to withhold settlement longer. Therefore, futures should trade at a 5% to 15% annualized premium in healthy markets. This situation is technically defined as “contango” and is not exclusive to crypto markets.

Ether futures 3-month annualized premium. Source: Laevitas

As displayed above, Ether’s futures contracts premium has come down from 20% on Oct. 21 to a meager 5.5%, just slightly above the neutral-market threshold. Although the basis indicator remains positive, it reached the lowest level in six months.

The crash below $3,000 on Jan. 10 was enough to drain any bullish sentiment, and more importantly, the Ethereum network’s high fees and delayed upgrades might have scared away some investors.

Currently, data shows little sign that bears are ready to take the helm. If this were the case, the Ether futures premium would have turned negative.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.