In this period of uncertainty, analysts do not know if Ethereum will be able to hold the level of $1,200. On the traditional market side, the S&P 500 is approaching its critical support of 3,900 points. The correlation of the crypto market with the equity market does not benefit ETH and the data on the derivatives of the latter suggests a continuation of decline.
The level of $ 1300 difficult to cross
After one market rise, seen mostly on Bitcoin, Ehtereum and the top 10 of the market, it is the turn of a bearish rally to surface. ETH was up 11.3% between Nov. 28 and Dec. 5, hitting a tentative high at $1,300 (before suffering a 4.6% decline). the $1,300 level acts as resistance for twenty-six daysso it is not surprising to see Ethereum correct below this level currently and in the days to come.
Ethereum/USD, 12h time unit – Source: TradingView
Right now, ETH is trading around $1223, or 12% above its low of $1070 achieved on November 22. Do not cross the resistance of 1300 $ is a failure for investors and traders. The resumption of the bullish trend of ETH in the short term will therefore still have to wait.
Bullish sentiment deteriorated greatly in the market after three members of the US Senate allegedly requested information from Silvergate Bank regarding his relationship with FTX. Lawmakers have asked the bank questions after reports suggesting that Silvergate facilitated the transfer of funds from FTX customers to Alameda. Lawmakers have given the U.S. bank until Dec. 19 to respond.
On Dec. 5, NBC News reported that Silvergate claimed to be a victim of FTX and Alameda Research, which “apparently misused client assets and made other errors in judgment.” As the negative news continues, the Financial Times reported yesterday that the UK Treasury is in the process of finalizing some guidelines aimed at restricting the sale of cryptocurrencies from abroad.
A good number of people fear that ETH will lose the $1,200 support. But according to trader CashMontee, the S&P 500 stock index will be key. He points out that for now the “market is too bullish”.
nah market too bullish I think. As long as spx stays up so does crypto. Monthly level at 1205 that i think will be tagged after but we didn’t take enough liquidity on eth yet to fall back down but of course could be wrong
— CashMontee (@CashMontee) December 5, 2022
A bearish sentiment observed on ETH futures
Generally, retail traders avoid forward contracts (futures) because of their price difference from the spot (cash) market. On the other hand, professional traders prefer these instruments because they avoid fluctuations in the funding rate.
The annualized premium for two-month futures should trade between +4% and +8% in a bullish market to cover the associated costs and risks. Nevertheless, when futures are trading at a discount to regular spot markets, it shows a lack of confidence on the part of leveraged buyers. It’s a real bearish indicator.
Annualized 2-month ETH futures premium – Source: Laevitas.ch
The chart above shows that derivatives traders remain bearish as the ETH futures premium is negative.
Options traders are not afraid of the downside
The 25% delta of the Skew is a sign when market makers and arbitrage offices charge too much for upside or downside protection. Skew is the term used to designate the difference in implied volatility (IV) between the Calls and the Puts of the same deadline.
In a bear market, option traders place more odds on a price decline, causing the skew indicator to break above 10%. Conversely, bullish markets tend to push the skew indicator below -10%, which means puts (short) are discounted.
Skew observation on Ethereum 2-month options – Source: Laevitas.ch
The delta skew has stabilized over the past week, indicating options traders are more comfortable with downside risk. With a 60-day delta standing at 12%, whales and market makers are feeling neutral on Ethereum. The options markets and futures contracts indicate that professional traders are expecting a retest of $1,200.
While the cryptocurrencies are increasingly correlated to the stock market, the answer may well lie in the future of the global macro economy. It will therefore be interesting to observe the market after the following events:
- the gross domestic product (GDP) of the euro zone and Canada on December 7;
- the US Consumer Price Index (CPI) on December 13;
And more generally follow:
- future inflation announcements from the SEC and Jerome Powell;
- the evolution of cryptocurrency regulation around the world.
Currently, the odds are in favor of a decline on ETH as the news implies the possibility of tighter regulation in the crypto market.
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