The price of Ethereum\u2019s native cryptocurrency, Ether (ETH<\/a>), gained 10.2% from Jan. 4 to Jan. 10, breaching the $1,300 resistance without much effort. But has the Ether price move cast a light on whether the altcoin is ready to begin a new uptrend?<\/p>\n After testing the $1,200 support on Jan. 1, the eight-week ascending channel has displayed strength, but Ether bulls fear that negative newsflow might break the pattern to the downside.<\/p>\n Despite the positive price trend, the sentiment around Ether and other cryptocurrencies hasn\u2019t been very enticing. For example, Xiao Yi, the former Chinese Communist Party secretary of Fuzhou, confessed on Jan. 8 to \u201cacting recklessly\u201d in support of crypto mining<\/a>. Xiao spoke from what appeared to be a prison, apologizing for causing \u201cgrave losses\u201d to the Fuzhou region.<\/p>\n On Jan. 10, South Korean tax agents reportedly raided crypto exchange Bithumb\u2019s offices<\/a> to explore a potential tax evasion case. On Dec. 30, Park Mo \u2014 an executive at Bithumb\u2019s parent company \u2014 was found dead, though he was under investigation for embezzlement and stock price manipulation.<\/p>\n Also on Jan. 10, Cameron Winklevoss, co-founder of the Gemini exchange, issued an open letter to Barry Silbert, CEO of Digital Currency Group. In the letter, Winklevoss makes some serious fraud accusations<\/a> and requests that the Grayscale fund management holding company dismiss Silbert to provide a resolution for Gemini\u2019s Earn users.<\/p>\n The ongoing crypto winter left another scar on Jan. 10 as the leading U.S. cryptocurrency exchange,\u00a0Coinbase, announced a second round of layoffs<\/a>, impacting 20% of the workforce. <\/p>\n However, the exchange\u2019s CEO, Brian Armstrong, tried to minimize the damage by stating that Coinbase remains \u201cwell capitalized\u201d and tranquilize investors with business-as-usual messages.<\/p>\n Consequently, some investors believe Ether could revisit prices below $600 as fear remains the prevalent sentiment. For instance, trader Crypto Tony expects the current triangle formation to cause another \u201cleg down later this year.\u201d<\/p>\n $ETH<\/a> \/ $USD<\/a> – Update <\/p>\n Unless we take out $2,200 on the macro level I am treating this as consolidation for a B or X wave, before we get one more leg down later this year<\/p>\n Volume is contracting and I also expect this to dwindle down lower. Pay attention pic.twitter.com\/LTik7GXEYa<\/a><\/p>\n \u2014 Crypto Tony (@CryptoTony__) January 10, 2023<\/a><\/p><\/blockquote>\n Let\u2019s look at Ether derivatives<\/a> data to understand if the bearish newsflow has caused traders to avoid leverage longs and neutral-to-bullish option strategies.<\/p>\n Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract<\/a>.<\/p>\n The two-month futures annualized premium should trade between +4% and +8% in healthy markets to cover costs and associated risks. When the futures trade at a discount versus regular spot markets, it shows a lack of confidence from leverage buyers, which is a bearish indicator.\u00a0<\/p>\n The chart above shows that derivatives traders using futures contracts exited the negative premium on Jan. 1, meaning the extreme bearish sentiment is gone. However, the current 1.5% premium remains below the 4% threshold for a neutral market. Still, the absence of leverage buyers\u2019 demand does not mean traders expect a sudden market downturn.<\/p>\n For this reason, traders should analyze Ether\u2019s options markets<\/a> to understand whether investors are effectively pricing in odds of a $600 retest.<\/p>\n The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.<\/p>\n In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.<\/p>\n The delta skew currently sits at 11% after flirting with the neutral range on Jan. 9, meaning that whales and market makers no longer charge excessive premiums for protective put options. That is a stark contrast from late 2022 when those trades were running up to 19% more costly than equivalent bullish strategies using options.<\/p>\nWill Ether\u2019s former resistance level turn to support? <\/h2>\n
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Leveraged bulls lagged the recent rally<\/h2>\n
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Options traders have stopped overcharging for downside protection<\/h2>\n
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