Ethereum hits a 6-month low
The price of Ethereum (ETH) has been trending down for three months, and derivatives data shows that professional traders are almost ready to throw in the towel.
Ethereum price lost support at $3600 on Jan 5 as the Federal Reserve Open Market Committee meeting minutes from December showed the regulator had pledged to reduce its balance sheet and raise interest rates in 2022.
Even with these looming overheads, Ethereum has its own issues, specifically, ongoing average transaction fees of $40 USD and up. On January 3, Vitalik Buterin said that Ethereum needs to be lighter in terms of blockchain data so that more people can manage and use it.
The worrying part of Buterin’s interview was the status of the Ethereum 2.0 upgrade, which was only halfway implemented after six years. The next phases of the roadmap include the “Merge” and “Surge” phases, followed by the “full sharing implementation”. Once implemented, they will lead to an estimated 80% completion of the network upgrade, according to Buterin.
Ethereum daily chart (ETH/USD)
For those analyzing the performance of Ethereum over the past few months, the current price looks attractive as the ETH cryptocurrency is currently 34% below its all-time high of $4,870. However, this myopic view ignores the 560% gain that Ethereum had accumulated as of November 10, 2021.
Furthermore, the adjusted total value locked (TVL) of the Ethereum network has fallen by 17% since the ETH price increase.
Total value of the Ethereum network locked (USD)
Source : Defi Llama
As noted above, the network’s TVL has grown from $166 billion to the current $138 billion. Meanwhile, competing smart contract networks saw their TVL rise, such as Terra, from $11 billion to $18.7 billion. Fantom also increased the value locked in its smart contracts from $5 billion to $9 billion.
Due to network update delays, deteriorating macro conditions, and a three-month price correction, professional traders are clearly feeling frustrated and anxious.
Ethereum futures are about to turn bearish
Quarterly futures contracts are generally the instruments of choice for whales and arbitrage desks due to their settlement date and price difference from spot markets. However, the biggest advantage of the contracts is the absence of a fluctuating financing rate.
These fixed-month contracts typically trade at a slight premium in the spot markets, indicating that sellers are asking for more money to delay settlement further. Therefore, futures should trade at an annualized premium of 5-15% in healthy markets. This situation is technically defined as “contango” and is not exclusive to the cryptocurrency markets.
3 Month Annualized Ethereum Futures Premium
As noted above, the Ether futures premium fell from 20% on Oct. 21 to a meager 5.5%, barely above the market’s neutral threshold. Although the basic indicator is still positive, it has reached the lowest level in six months.
The drop below US$3,000 on January 10 was enough to deplete any bullish sentiment, and more importantly, the high Ethereum network fees and delayed updates may have spooked some investors.
Currently, the data shows little sign that the bears are ready to take the helm. If this were the case, the futures premium for Ethereum contracts would have turned negative.
By Marcel Pechman, Cointelegraph
Marcel is a crypto analyst with 17 years of experience as a stock seller for UBS, Deutsche Bank, Pactual and Banco Safra. Brazilian. Marcel has a graduate certificate in engineering and a bachelor’s degree in business administration.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Forex Quebec. Every investment and trading move involves risk, you should do your own research when making a decision.
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Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell foreign exchange contracts or CFDs. Although the information contained in this document comes from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect, or consequential damages that may result from anyone relying on such information.
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