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The $1,600 level continues to act as barrier for the price of ETH, suggesting that the current surge may not have enough traction to continue.
This is the third time since September 2022 that the Ethereum price has attempted to overcome resistance at $1,600. Some claim that the 33% increase in value so far this year might be seen as a missed chance to surpass the $200 billion market capitalization threshold.
Ether would once again rank among the top 60 traded assets in the world if the price of Ethereum rose beyond $1,600, surpassing market leaders like Nike (NKE), Novartis (NVS), Cisco (CSCO), and Toyota (TM).
Unfortunately, futures markets are not suggesting that Ether will ultimately breach the $1,600 resistance, at least not until the U.S. Federal Reserve changes its policy and stops tightening the economy, which is bad news for optimistic traders.
The $1 billion net loss suffered by Silvergate Bank in the most recent quarter might help to partially explain the bulls’ annoyance. On January 5, the crypto-friendly bank let go almost 40% of its staff. As a result, it is now being sued in a class-action lawsuit for its interactions with FTX and Alameda Research. Silvergate is accused of aiding and abetting FTX’s fraudulent operations as well as the exchanges’ violations of fiduciary responsibility, according to the lawsuit.
On January 17, more bad news emerged when Mamoru Yanase, the deputy director-general of the Financial Services Agency’s Strategy Development and Management Bureau for Japan, argued that the regulation of the cryptocurrency industry should be the same as that imposed on conventional banks and brokerages.
The fact that Ether is still trading above $1,500 is encouraging, but the most recent price surge came immediately after the Russell 2000 index gained 8%. Investors worry that data indicating lower inflation was the primary factor in the recovery of the cryptocurrency market, so any decline in the stock market might bring on another round of selling.
Investors thus think that if the U.S. Federal Reserve keeps rising interest rates, Ether might reverse its recent gains. Let’s examine the data for Ether derivatives to see whether the unexpected surge had a beneficial effect on investor sentiment.
Due to the price disparity between quarterly futures and spot markets, retail traders typically steer clear of them. Professional traders, though, favor these securities because they stop financing rates from fluctuating in a perpetual futures contract.
To cover expenses and related risks, the two-month futures annualized premium should trade in healthy markets between +4% and +8%. However, it indicates a lack of trust among leverage purchasers when the futures trade at a discount to conventional spot markets, which is a negative indication.
Because o fthe Ether futures premium being below the 4% cutoff, the aforementioned graphic demonstrates that derivatives traders are still operating in “fear mode.” Although it does not suggest that traders anticipate additional negative price movement, this data shows that leverage buyers’ desire is absent.
Due to this, traders should examine the Ether options markets to see whether or not investors are estimating the likelihood of unexpectedly negative price moves to be higher.
When market makers and arbitrage desks overcharge for upside or downside protection, the 25% delta skew is a telltale indication.
Options traders increase their likelihood of a price drop during bad markets, pushing the skew indicator beyond 10%. The bearish put options are disregarded, however, in positive markets, which tend to bring the skew indicator below a -10% level.
Since January 14, the delta skew has significantly improved, going from neutral to bearish positive 10% to neutral options pricing. Due to the fact that the 60-day delta skew is currently minus 2%, the shift indicated that options traders have grown more at ease with downside risks.
Options markets indicate that whales and market makers are not yet bullish, but the absence of anxiety following a 33% gain is positive. The $1,600 resistance is being feared by professional traders, according to both the options and futures markets.
In other words, before crypto investors turn optimistic, the FED will likely need to take more decisive action, either by signaling that the interest rate rise is nearing its conclusion or by changing its approach to containing inflation.
