2 key Ethereum derivatives metrics suggest that $880 was ETH’s bottom

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The price of Ether (ETH) is up 16% since July 1 and has outperformed Bitcoin (BTC) over the past 7 days. The move may be partly motivated by investors clinging to their hopes that the Ethereum network’s transition to a proof-of-stake (PoS) consensus will be a bullish catalyst.

The next phase of this smart contract includes “The Merge”, formerly known as Eth 2.0. Final testing on the GoErly testnet is expected in July, before the Ethereum mainnet gets the green light for its upgrade.

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Since Terra’s ecosystem collapse in mid-May, Ethereum’s total value locked (TVL) has soared and the flight-to-quality in the decentralized finance (DeFi) industry has given Ethereum its strong security and war-making including MakerDAO. Thanks for the tested applications.

Total value closed by market share. Source: Defi Llama

According to DeFi Lama data, Ethereum currently holds 57% of the market share of TVL, up from 51% on April 8. Despite this gain, the current $35 billion deposited on the network’s smart contracts seems small compared to the $100 billion seen in December 2021.

Also supporting the reduction in decentralized application usage on Ethereum has been a drop in the median transfer fee, or gas cost, which currently stands at $1.32. This figure is the lowest since mid-December 2020, when the network’s TVL stood at $13 billion. However, one can attribute part of the movement to the high use of layer-2 solutions such as polygons and arbitrums.

Options traders flirt with neutral limits

Traders should look at Ether derivatives market data to understand how whales and market makers are positioned. In that sense, a 25% delta skew is a clear signal whenever professional traders charge more for a security to the upside or downside.

If investors expect the Ether price to rise, the skew indicator drops to -12% or less, indicating generalized bullishness. On the other hand, a skew above 12% indicates reluctance to take bearish strategies, which is typical of bear markets.

Ether 30-Day Option 25% Delta Slant: Source: Laevitas.ch

The Skew indicator briefly touched a neutral-to-bearish range on July 7 as Ether completed a 19% rally in four days. But those options traders soon shifted to a more conservative approach, giving the market higher chances of a downtrend as the skew moved to the current 13% level. In short, the higher the index, the less willing traders to pay the downside risk.

Margin traders have become extremely bullish

To confirm whether these activities were confined to a specific option instrument, one must analyze the margin markets. Lending allows investors to take advantage of their positions to buy more cryptocurrencies. When those savvy traders open margin for a long time, their profit (and potential loss) depends on the rise in the price of Ether.

Bitfinex margin traders have been known to create position contracts worth 100,000 ETH or more in a very short period of time, indicating the involvement of whales and large arbitrage desks.

Bitfinex ETH margin is long. Source: Coinglass

Interestingly, these margin traders have significantly increased their holdings since June 13 and the current 491,000 contracts are close to their highest level in 8 months. This data shows that these traders are effectively not anticipating a disastrous price break below $900.

Although there has been no significant change in the options risk metrics of pro traders, margin traders remain bullish and are unwilling to short their long positions despite the “crypto winter”.

If these whales and market makers are convinced that $880 was an absolute bottom on June 18th, traders may begin to believe that the worst of the bear market is behind us.

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