- May 13, 2023
- Posted by: [email protected]
- Category:
The recent failed attempt by Ether to rally above $2,000 on May 6 has made it clear that ETH bulls are hesitant to add leveraged long positions. The price of Ethereum briefly went above $2,000 on May 6, but it has since been fluctuating within a tight range between $1,820 and $1,950, a pattern that has persisted for three weeks. According to Ether futures and options data, the odds are in favor of the price of Ether breaking below the $1,820 support. This is because professional traders have been reluctant to add neutral-to-bullish positions using derivatives contracts.
Even the meme coin frenzy that boosted demand for the Ethereum network has not inspired confidence in investors. According to BitInfoCharts data, the average transaction fee for Ethereum reached $27.70 on May 6, the highest in 12 months. The increased demand for Pepe (PEPE), among other meme coins, was one of the factors fuelling the growth. This surge in gas fees has pushed users towards layer-2 solutions, which some see as a weakness as it decreases the total value locked by removing deposits from the Ethereum chain, particularly in decentralized finance applications.
Some analysts believe that the $30 million ETH sale by the Ethereum Foundation contributed to ETH being unable to break above $2,000, as nearly 20,000 ETH were sent to the Kraken cryptocurrency exchange. The foundation’s last significant transfer occurred in November 2021, when the price peaked at around $4,850 and subsequently declined by 80%.
In addition, the United States’ 4.9% April consumer price index (CPI) data, released on May 10, increased investors’ expectations of stable interest rates at the next Federal Reserve meeting in June. CME Group’s FedWatch Tool showed 94% odds of stability at the current 5% to 5.25% range. This lack of a Fed pivot on the horizon means that the demand for risk-on assets such as cryptocurrencies should remain under pressure.
Ethereum traders have been cautious in the past week, as there was no surge in demand for leveraged longs during the rally above $2,000 on May 6. The ETH futures premium presently stands at 1.4%, reflecting a complete lack of appetite from buyers using derivatives contracts. This caution is likely to continue if the three-week sideways movement breaks to the downside.
The Ethereum options and futures markets suggest that professional traders are not confident, particularly given the 10.6% rally between May 2 and 6. If the three-week sideways movement breaks to the downside, weak derivatives indicators are more likely to flip bearish, indicating a lack of trust and demand for longs. If Ethereum’s price breaks below $1,820, traders should expect a much higher appetite for bearish bets using ETH derivatives.
