5.8 min read
3 reasons why ETH bouncing $1300 resistance
Written byKevin Lopez
December 7, 2022
- Investor sentiment took a hit after three members of the U.S. Senate demanded information from Silvergate Bank about its relationship with FTX.
- Derivatives traders remain bearish due to the negative Ether futures contango.
- The delta skew has stabilized over the past week, suggesting options traders are more comfortable with downside risk.
- For now, the odds are favored for Ether bears, as news flow hints at possible tightening regulations, weighing on the market.
- There is also the macro to play out with Eurozone and Canadian GDP on 7 December and US CPI on 13 December.
Ether surged 11.3% between Nov. 28 and Dec. 5, topping out at $1,300 before suffering a 4.6% rejection. Resistance at $1,300 has held for 26 days and is the most likely explanation for the pullback to $1,240 on December 6.
So, on the one hand, traders were relieved to see Ether trading 16% above the low of $1,070 hit on Nov. 22, but it was certainly frustrating not being able to stay at the same level all week. Investor sentiment took a hit after three members of the U.S. Senate reportedly demanded information from Silvergate Bank about its relationship with FTX.
Lawmakers asked questions about “reports suggesting Silvergate facilitated the transfer of FTX client funds to Alameda,” giving the bank until Dec. 19 to respond.
On Dec. 5, NBC News reported that Silvergate claimed to be a "victim" of "apparent misappropriation of client funds and other miscalculations" by FTX and Alameda Research.
The news flow remains negative after the Financial Times reported that the U.K. Treasury is finalizing some guidelines to limit the sale of cryptocurrencies from abroad. The changes will allow the Financial Conduct Authority (FCA) to monitor the activities of cryptocurrency firms in the region. The guidance was prepared as part of the Financial Services and Markets Act.
Investors worry that Ether could lose support at $1,200, but as trader CashMontee pointed out, the S&P 500 stock market index will be key — but right now, “the market is too bullish.”
Let’s take a look at Ether derivatives data to see if the bearish news flow is affecting crypto investor sentiment.
Increasing bearish demand for the leverage of ETH futures
Retailers typically avoid using quarterly futures because of price differences from the spot market. At the same time, professional traders prefer these tools because they prevent fluctuations in funding rates in perpetual contracts.
In a healthy market, the annualized two-month contango should trade between +4% and +8% to cover the costs and risks involved. So when futures trade below the regular spot market, it signals a lack of confidence among leveraged buyers — a bearish indicator.
ETH 2-month futures annualized premium. Source - Laevitas.ch
The chart above shows that derivatives traders remain bearish due to the negative Ether futures contango. So bears can celebrate the far-from-neutral 0% to 4% premium on the indicator, but that doesn't mean traders expect an immediate negative move in price.
Because of this, traders should analyze Ether's options market to rule out futures instrument-specific externalities.
The downside risks are becoming more and more familiar to option traders.
A delta skew of 25% is a clear indication that market makers and arbitrage desks are overcharging for upside or downside protection.
In a bear market, options investors offer a higher chance of price dumping, causing the skew indicator to rise above 10%. On the other hand, a bullish market tends to push the skew indicator below -10%, which means bearish puts are discounted.
ETH 60-day options 25% delta skew. Source - Laevitas.ch
The delta skew has stabilized over the past week, suggesting options traders are more comfortable with downside risk.
With a 60-day delta bias of 12%, whale and market maker sentiment towards Ether is close to neutral. Ultimately, both options and futures markets indicate that professional traders are concerned that a retest of support at $1,200 is ETH’s natural path.
The answer might as well be hidden under the upcoming macroeconomic calendar, which includes Eurozone and Canadian GDP on 7 December and US CPI on 13 December.
For now, the odds are favored for Ether bears, as news flow hints at possible tightening regulations, weighing on the market.
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