Key takeaway:
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ETH is under selling pressure as $480 million in liquidations and falling network fees hit investor confidence.
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ETH’s negative funding rate could play a task in a possible recovery rally.
The price of Ether (ETH) experienced a three-day correction of 13.8% and retested the $2,900 support for the primary time in 4 weeks on Wednesday. The move followed a pointy decline across the cryptocurrency market as traders became risk-averse amid a deteriorating socioeconomic environment.
ETH reclaimed the $3,000 mark after US President Donald Trump canceled import tariff increases for various European Union countries. However, traders fear further downside after $480 million in bullish leveraged positions were liquidated in two days.
The annual funding rate of ETH Perpetual Futures. Source: laevitas.ch
The funding rate for ETH perpetual futures briefly turned negative on Wednesday, meaning short sellers (sellers) needed to pay to maintain their positions open. In neutral circumstances, this indicator needs to be between 6% and 12%, with long positions (buyers) paying for leverage. Still, a insecurity just isn’t necessarily an indication of a bear market.
Traders fear that institutional interest in Ethereum has waned on account of recent outflows from spot Ether exchange-traded funds (ETFs). These investment vehicles currently hold over $17 billion price of ETH, representing significant market overhang.
Daily net inflows of US-listed Ether spot ETFs, USD. Source: Farside Investors
U.S.-listed Ether ETFs recorded net outflows of $230 million on Friday, reversing the previous week's trend of average net inflows of $96 million. Even more worrying, corporations which have focused on accumulating ETH as a reserve strategy are facing large balance sheet losses, including Bitmine Immersion (BMNR US) and Sharplink (SBET US).
ETH traders pay more for downside protection: Are the bears in charge?
To confirm whether skilled traders have turn into bearish, one should evaluate the demand for ETH options. When whales and market makers fear further downside, the skew metric moves above 8% as put (sell) options trade at a premium in comparison with equivalent call (buy) instruments. In contrast, bullish markets are frequently followed by a skew indicator below -8%.
ETH 1-week options delta skew (put call) at Deribit. Source: laevitas.ch
According to the ETH options skew, traders are currently demanding an 11% premium to keep up downside risk, the very best level in seven weeks. Far from being a sign of bearish bets, the indicator reflects traders' unease following multiple rejections of ETH price at $3,400 over the past 10 weeks while the Ethereum network's on-chain metrics declined.
Blockchains sorted by 7-day fees, USD. Source: Nansen
According to Nansen, Ethereum network fees have fallen by 20% from their base value prior to now week. Meanwhile, competitor Solana saw 36% higher fees and the BNB chain collected 27% higher fees. More importantly, Solana's leadership in transaction volume stays undisputed, as the overall of the Ethereum base layer and scaling solutions was below 570 million in seven days.
Given the dearth of demand for leveraged bullish ETH positions and increasing competition in decentralized application computing, the probabilities of a sustained price rally in Ether within the near term remain slim.
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