Signs of fear appear when the Ethereum price falls back below $ 3,000
Technical analysis is a controversial topic, but higher lows are often interpreted as signs of strength. Today, Ether (ETH) may be 30% below its May 12 high of $ 4,380, but the current price point of $ 3,050 is 78% above the 6-month low of $ 1,700. In order to understand whether this is a “half a glass” situation, one has to analyze the positioning of private and professional traders through the futures market.
On September 24, Chinese authorities announced new measures to limit the adoption of cryptocurrencies, which resulted in the second largest Ethereum mining pool (Sparkpool) ceasing to operate on Monday. According to Sparkpool, these measures are intended to ensure the security of user resources that meet “regulatory requirements”.
Binance has also announced that it will suspend fiat deposits and spot crypto trading for users in Singapore in accordance with local regulatory requirements. Another leading derivatives company and spot exchange in Asia, Huobi, has also announced that it will be removing existing user accounts in mainland China later this year.
Professional traders are neutral, but fear is starting to subside
In order to assess whether professional traders tend towards an upward trend, one should first analyze the futures premium – also known as the prime rate. This indicator measures the price difference between the futures contract price and the regular spot market.
The quarterly ether futures are the favorites of whales and arbitrage. While it may seem complicated to private traders due to their settlement dates and the arbitrage with respect to the spot market, their biggest advantage is the lack of fluctuating funding rates.
3-month futures should usually be traded at an annual premium of 5% to 15%, which is roughly equivalent to stablecoin loan rates. By deferring payment, the seller demands a higher price, which creates a price difference.
As noted above, Ether’s decline below $ 2,800 on September 26th caused major interest to test the 5% threshold. However again on Monday.
Retailers often opt for perpetual contracts (reverse swaps) that charge fees every 8 hours depending on which side is using more leverage. Therefore, to understand whether long traders are panicking over the recent flow of news, one needs to analyze the funding rate of the futures market.
In neutral markets, financing rates tend to fluctuate between 0% and 0.03% on the positive side. This equates to 0.6% per week and indicates that long buyers are the ones to pay for it.
From September 1 to September 7, the funding rate rose moderately, but disappeared when a sudden crypto crash caused the liquidation of $ 3 billion futures contracts, $ 54 billion. Apart from a few short-term, slightly negative phases, the indicator has remained stable since then.
Both professional traders and retail investors appear unaffected by the recently tested support of $ 2,800. However, the situation could quickly reverse and “fear” could arise if Ether falls below a price level that has remained strong for 52 days.
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