Ether (ETH) rose 5.6% on December 20 after testing support at US$1, 150 the day before. Nevertheless, the bearish trend, which forms a three-week downward channel, is dominated by expectations of further rate hikes by the U.S. Federal Reserve.
Jim Bianco, head of institutional research firm Bianco Research, said on December 20 that the Fed will continue to tighten the economy in 2023. Later in the day, Japan’s central bank raised interest rates to combat inflation, but this was much later than other central banks. The unexpected move made analysts bearish on risk assets, including cryptocurrencies.
Ethereum may have received a tailwind after global payment system Visa offered a solution to allow automated deposits from Ethereum wallets. Since self-storage wallets do not allow for regular account auto-payments, Visa relies on smart contracts known as “account abstractions.” Curiously, this concept was created by Vitalik Buterin in 2015.
The most pressing issue, however, is regulation: on December 19, the U.S. House Financial Services Committee again passed legislation aimed at establishing innovative offices at public financial services institutions. According to North Carolina Representative Patrick McHenry, firms would be able to apply for “enforceable compliance agreements” at the offices of agencies such as the Securities and Exchange
Commission and the Commodity Futures Trading Commission.
As a result, investors believe Ether could fall below $1, 000 again as the DXY Dollar Index loses momentum and the 10-year U.S. Treasury yield shows increasing demand for protection. traders at CryptoCondom are very bearish for the cryptocurrency market in the coming months. CryptoCondom traders expect the next few months to be very bearish for the cryptocurrency market.
Algorithmically, the $DXY will fall and the price of the virtual currency will rise. Not only is the $DXY optimistic, but it also indicates that something is breaking down.
DXY ⬇️ and 10Y ⬆️ = recession
Expect triple-digit $ETH and open short positions in the market.
Cryptocurrencies are the future of France, but the next 2 to 3 million will feel like a concentration camp. Photo. Twitter. com/nLKqtNz3C3
– Cryptocondom (@crypto_condom) December 20, 2022
Let’s take a look at the Ether derivatives data and see if negative macroeconomic developments are affecting investor sentiment.
The recent rebound above $1, 200 did not inspire optimism.
Retailers typically avoid quarterly futures because of the price differential from the spot market. Professional traders, on the other hand, prefer these instruments because of the volatility of funding rates in open-ended futures contracts.
The two-month premium on a forward contract should be between 4% and 8% in a healthy market to cover costs and risks. When futures are trading at a discount to the normal spot market, it indicates that leverage buyers have lost confidence, which is a bearish indicator.
The chart above shows that derivatives traders continue to use more leverage on their short (bearish) positions as the premium on Ether futures remains negative. Still, the lack of demand from leveraged buyers does not mean that traders are expecting even more adverse price movements.
Therefore, traders should analyze the Ether options market to see if investors are overestimating the potential for unexpected adverse price movements.
Options traders are hesitant to offer downside price protection
A 25&nbsp;% delta skew indicates that market makers and arbitrageurs are pricing too high for upside or downside protection.
When the market declines, options investors are more likely to see prices fall and the skew indicator rises above 10%. In a bull market, on the other hand, the skew indicator tends to fall below -10%, meaning that bearish put options are discounted.
The skew delta has risen from a shocking 14% for protective put options to the current 20% since December 15. This move indicates that option traders are even less accustomed to downside risk.
The 60-day delta skew shows that whales and market makers are not willing to offer downside protection.
In short, both the options and futures markets indicate that professional traders are not confident in the recent rally above $1, 200. The current trend favors the Ether bearish camp as the Fed is likely to continue its balance sheet reduction program, which is detrimental to risk markets.