Ether (ETH) price declined 6% on March 2-3, followed by narrow range trading near $1,560. Still, analysis of a longer time frame does not provide a clear trend, as your chart may point to a descending channel or a slightly longer bullish seven-week pattern.
Ether’s recent lack of volatility can be partly explained by the upcoming Shanghai hard fork, an implementation intended to allow ETH staking withdrawals. Each of those participants was required to lock 32 ETH on the Beacon Chain to support the network’s consensus protocol.
After a series of delays, typical of changes to the production environment, the Shanghai Capella update, also known as Shapella, is expected in early April, according to lead developer and Ethereum project coordinator Tim Beiko. The Goerli testnet upgrade on March 14 will be the final test for the Shanghai hard fork before it is rolled out to the mainnet.
Recession risks rise, favoring ETH bears
On the macroeconomic front, US Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on March 7. Powell fixed that interest rates will likely rise more than anticipated after “the latest economic data has been stronger than expected.”
Evidence points to the Federal Reserve falling behind the inflation curve, raising the likelihood of stronger-than-expected interest rate hikes and asset sales by the monetary authority. For example, a “surprise” inflation index from Citigroup pink in February for the first time in over 12 months.
For risk assets, including cryptocurrencies, a more substantial Fed move typically implies a bearish scenario, as investors seek refuge in fixed income and the US dollar. This shift becomes more pronounced in a recessionary environment, which many speculate is coming or already here.
The regulatory environment is adding additional pressure for cryptocurrency companies, especially after US Press Secretary Karine Jean-Pierre said that the White House has noted that crypto-friendly bank Silvergate had “experienced significant problems” in recent months.
Let’s look at the Ether derivatives data to understand if the $1560 level is likely to become support or resistance.
ETH derivatives show reduced demand for longs
The annualized premium for three-month futures should trade between 5% and 10% in healthy markets to cover costs and associated risks. However, when the contract is trading at a discount (known as “backwardation”) compared to traditional spot markets, it shows a lack of confidence on the part of traders and is considered a bearish indicator.
The chart above shows that derivatives traders were a little uneasy as the Ether futures premium (on average) moved to 3.1% on March 7, down from 4.9% the week before. More importantly, the indicator drifted more than the 5% mark from neutral to bullish.
Still, declining demand for long (bullish) leverage does not necessarily translate into an expectation of adverse price action. Consequently, traders need to analyze the Ether options markets to understand how whales and market makers are pricing the probabilities of future price movements.
The 25% delta bias is a telltale sign that market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, option investors give higher odds of a price dump, driving the bias indicator to rise above 10%. On the other hand, bull markets tend to drive the bias metric below -10%, which means that bear put options are less in demand.
The delta bias moved above the 10% bearish threshold on March 4, indicating stress for professional traders. A brief improvement occurred on March 7, though the metric continues to flirt with bearish expectations as options traders place higher costs on protective puts.
Investors who base their decisions on fundamentals will likely watch the first few weeks after the Shanghai update to gauge the potential impact of the ETH unlock. Ultimately, the futures and options markets indicate that professional traders are less inclined to add long positions, making $1,560 more likely to become a resistance level in the coming weeks.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed here are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
