Ethereum derivatives data shows pro traders are bearish, but for how long?

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Ethereum derivatives data shows pro traders are bearish, but for how long?
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Ethereum (ETH) lost key psychological support at $3,000 on April 11 after a 16% weekly drop. The $104 million leveraged long futures were liquidated on April 11, no doubt as a surprise to the longs. Ethereum’s downturn has also been accompanied by a drop in the total value locked (TVL) in Ethereum smart contracts.

Ethereum network TVL in ETH. Source: Defi Llama

The metric peaked at 40.6 million ether on Jan. 27 and has since fallen 22 percent. This metric could partly explain why Ether could not withstand the adversity of Bitcoin (BTC)’s 13% negative weekly move.

However, the leading altcoin had its own catalyst, as Ethereum developers implemented the network’s first “shadow fork” on April 11. The testnet update creates an area for developers to stress-test their hypotheses around the complex turn of the network to prove-stakes.

More importantly, there is no better measure than the derivatives market for analyzing how professional traders position themselves.

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Futures premiums return to bearish levels

To understand whether the current bearish trend reflects the sentiment of top traders, one should analyze the futures contract premium for ether, also known as the “basis”. Unlike perpetual contracts, these fixed-calendar futures have no funding rates, so their prices will be very different from regular spot trades.

Traders can gauge market sentiment by measuring the fee gap between the futures and regular spot markets. A neutral market should offer an annualized premium (base) of 5% to 12% as sellers demand more capital to extend settlement time.

Ether 3-month futures premium. Source: laevitas.ch

The chart above shows that Ethereum’s futures premium was above the 5% neutral threshold between March 25 and April 6, but then weakened to 3%. This level is usually associated with fear or pessimism, as futures market traders are reluctant to open leveraged long (buy) positions.

Long-short data confirms worsening situation

Top traders’ net long-to-short ratios exclude external factors that could affect long-term futures instruments. A live analysis of these whale positions, perpetuals and futures contracts provides a better understanding of whether the pros are effectively turning bearish.

The top traders on the exchange trade at too many short ratios. Source: Coinglass

First, one should be aware of methodological differences between different exchanges, so absolute numbers are less important. However, since April 5, the long-to-short ratios on all major derivatives exchanges have fallen sharply.

Data suggests that whales have been increasing their bearish bets over the past week. For example, Binance Whales had a long-short ratio of 1.05 on April 5, but it gradually decreased to 0.88. Additionally, OKX top traders moved from 2.11 to support bulls to the current 1.35.

Related: Kava Turns Bullish as Ethereum Co-Chain Launch Pushes EVM Compatibility

Are investors and users abandoning the web?

From the perspective of the above indicators, there may be no indicators that are extremely bearish, but the futures basis and the long-short ratio of top traders have deteriorated over the past week.

Additionally, TVLs in Ethereum smart contracts indicate a drop in usage. Continued delays in proof-of-stake migrations could distract investors and push decentralized finance (DeFi), gaming, and non-fungible (NFT) projects to competing networks. In turn, traders have been focusing on more promising altcoins, reducing demand for ether.

The views and opinions expressed here are those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading action involves risk. You should do your own research when making a decision.



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