Is now the right time to enter the ETH market?
ETH, the largest altcoin in the market, doesn’t seem to have had any dramatic price movements in the past few days.
In the cryptocurrency market, the majority of retail investors are generally optimistic. This now leads to an interesting fight between the long and the short participants.
Interestingly, all of the ETH liquidations hit a new high on the 3-day chart. This essentially implies that the contract holders exited the market at a loss. At the time of this writing, the number of long liquidations has reasonably exceeded the number of short liquidations. In general, such a move is not conducive to the price.
Financing rate perpetual ETH futures contract | Source: Glassnode
In view of the financing rate of the Perpetual Futures contract, the price of the Perpetual Futures contract is quite similar to the price on the spot exchanges, unlike regular monthly contracts. This helps limit the exposure to rotating positions near the expiration date and the calculation of futures spreads.
So if a short position is too leveraged, the funding rate becomes negative and the seller pays the long holder fees. This is usually the situation ETH finds itself in for most of the month.
A negative funding rate is designed to give buyers reassurance as it gives incentives to build strength and try to suppress short sellers. However, once the short position closes its position, the situation will tend to even out and the funding rate will be neutral. At the same time, it should be noted that this opportunity is usually short-lived. Therefore, this can be seen as a buy signal for the time being.
IV (green) and RV (red) | Source: Skew
The latent volatility (IV) of ETH compared to real volatility (RV) paints a different interesting picture. In fact, IV represents the fair value of volatility based on market expectations, while RV is the actual volatility available in the market at a given point in time. As shown in the attached table, RV has completely supplanted IV in recent weeks.
It is noteworthy that from April 25 to May 15, when ETH price repeatedly broke new ATHs, the difference between actual volatility and potential volatility was not too great. Similarly, in other previous uptrends, both IV and RV moved together to a reasonable extent.
Historically, RVs have overshadowed IVs that have negatively impacted the market. In this case, the index has been in a bearish state since the beginning of June, in fact the RV rate is increasing and, if not contained, could reach the level of collapse like the Covid-19 incident in April 2020.
In order for ETH to enter a bullish zone during this phase, a simultaneous increase in IV is required. However, the current very volatile environment is likely to force traders to take up their positions again. This, in turn, could give the ETH market some temporary respite.
Why should investors worry about ETH right now?
The ETH and its indices are currently inconspicuous. The price action is also not in good shape as the price has dropped 14% in the last 7 days. Despite the positive news about the approval of the first Ethereum Exchange Traded Fund (ETF) on a Latin American exchange by the Brazilian Securities and Exchange Commission (CVM), investments are still rather weak. The following on-chain metrics will shed some light on why ETH is not moving up.
The first indicator to look at is the Output Return to Spend Ratio (SOPR), which determines the ratio of the actual value of a coin to the value it acquired during its formation. According to the chart drawn with the 30-day SMA, the ratio shows a line below zero, which represents a loss in the market. The current decline is the lowest for the indicator in over a year and it continues to decline.
SOPR hits low for the year | Source: Glassnode
Just a short term downtrend?
Are not. This behavior is not a short-term downtrend just because other key indicators in the chain are showing positive signs. The exchange’s net flow volume and developer activity are showing healthy market signals. In addition, the number of Coins Destroyed Days (CDD) is always low, which means that no old coins are sold. The daily volume does not suggest an abrupt move.
Regular movement on CDD chart | Source: Glassnode
The index changes sentiment mainly from investors and the community. For the ETH the social volume has been decreasing for some time. At the time of going to press, the volume had hit a 3-month low, which shows investors’ skepticism.
Social volume at 3-month low | Source: Santiment
Finally, take a look at the NUPL chart to see exactly how the market is feeling right now. The index fell to its lowest level in June of this year and is now going back there. Although fear isn’t necessarily the worst mood in the market. However, it is proof of what investors are thinking.
Unrealized net profit / loss (NUPL) declines, near 2021 low | Source: Glassnode
According to AZCoin News