Ethereum rally to $3,700? Unlikely, say 2 derivative parameters
Ether (ETH) traders were shocked when the price neared $3,500 on June 11, causing a long-term loss of $90 million in ETH usage in 48 hours. Although the decline was largely influenced by macroeconomic developments, including the US central bank's improved outlook and US jobless claims, Ether investors are now tired, as indicated by two specific metrics.
Federal Reserve forecasts partially explain ETH price weakness
On June 12, the US Federal Reserve released its interest rate forecast, revealing that four officials expect no change until the end of 2024. The remaining 15 officials were divided and expected one or two cuts by the end of the year. This has been somewhat discouraging for risk averse investors as it reduces incentives to exit fixed income assets. However, Fed Chairman Jerome Powell emphasized that the labor market and price stability are key drivers of monetary policy decisions.
The US Labor Department reported on June 13 that the number of Americans applying for new unemployment benefits rose to a 10-month high of 242,000 last week. Oliver Allen, senior US economist at Pantheon Macroeconomics, commented to Yahoo Finance, “Higher long-term rates, tighter credit conditions and a gradual weakening of demand are weighing more heavily on businesses, particularly small firms.
Weak macroeconomic indicators are generally favorable for risk assets such as ether, as economic weakness could force the Fed to cut interest rates sooner. However, there is no certainty that investors will turn to alternative assets such as cryptocurrencies in a challenging economic environment, and the lack of a U.S. spot ether exchange-traded fund (ETF) only adds to the uncertainty.
According to Fox Business reporter Eleanor Terrett, US Securities and Exchange Commission Chairman Gary Gensler has indicated that it could take up to three months to approve S-1 filings for individual Ether ETFs. This delay is partly due to investors becoming more cautious about buying large amounts of ETH derivatives, along with other factors such as a decline in decentralized application activity.
Ether extracts show a mild need for energy
Delta skew measures the relative volatility of bullish versus bearish options. A negative skew indicates a strong demand for call options (buy), a positive skew indicates a preference for put options (sell). Neutral markets typically exhibit a delta skew of -7% to +7%, indicating relative pricing between calls and options.
Between June 11 and June 12, Ether entered bullish territory when its 25% delta skew fell below -7%. However, this optimism was dampened on June 13 as Ether failed to hold above the $3,600 mark, causing traders to price in both positive and negative ETH price movements.
Retail traders often prefer long-term futures, a type of derivative that closely tracks the price movements of the underlying markets. To manage proportional risk exposure, exchanges execute payouts every eight hours, called liquidity. This ratio turns positive when buyers (longs) want more leverage and sellers (shorts) want more leverage.
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Currently, Ether's perpetual funding is stable at 0.01% every eight hours, translating to 0.2% per week. Such an amount is generally considered neutral, especially when periods of high activity can increase the weekly cost of long positions by up to 1.2%. Notably, the funding rate was 0.035% per week on June 6, indicating that sentiment has deteriorated over the past week.
As Ether derivatives failed to maintain higher bullish levels, despite the upcoming US spot ETFs and macroeconomic data pointing to a weak labor market, the likelihood of ETH above $3,700 in the near term seems less likely.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
