ETH’s 13% drop to $4,100 led to $200 million in futures liquidations, but pro traders still have reason to stay long and strong.
Ether (ETH) traders might have a few reasons to panic after today's 13% drop down to $4,100. The swift pullback appears to have broken a 55-day ascending channel that had a target at $5,500.
Ether/USD price at FTX. Source: TradingView
Those not worried about technical analysis will understand that the cryptocurrency's 3.4% daily volatility justifies the 10% negative price swing. Still, one should not disregard externalities such as the United States infrastructure bill approval on Monday.
The legislation requires that digital asset transactions worth more than $10,000 are reported to the Internal Revenue Service. It remains unknown whether that will be applied to individuals and businesses developing blockchain technology and wallets.
Furthermore, on Nov. 12, the United States Securities and Exchange Commission officially denied VanEck's spot Bitcoin exchange-traded fund application request. The regulator cited "fraudulent and manipulative acts and practices," along with the lack of transparency on Tether’s (USDT) stablecoin.
Today’s liquidations were not significant
The unexpected ETH price move triggered $200 million worth of leveraged long futures contract liquidations but the open interest on Ether's futures markets is still healthy.
ETH futures aggregate open interest. Source: CoinGlass.com
Notice how the current $11.9 billion still in place for perpetual and quarterly futures contracts is 37% higher from two months ago. However, the number of leverage longs (buy) and shorts (sell) are matched at all times in any derivatives contract.
Pro traders are no longer excessively optimistic
To determine whether professional traders are leaning bearish, one should start by analyzing the futures premium — also known as the basis rate. This indicator measures the price gap between futures contract prices and the regular spot market.
Ether's quarterly futures are the preferred instruments of whales and arbitrage desks. Even though derivatives might seem complicated for retail traders due to their settlement date and price difference from spot markets, the most significant advantage is the lack of a fluctuating funding rate.
Ether three-month futures basis rate. Source: Laevitas.ch
The three-month futures typically trade with a 5% to 15% annualized premium, which is deemed an opportunity cost for arbitrage trading. By postponing settlement, sellers demand a higher price, and this causes the price difference.
As depicted above, Ether's surge past $4,000 on Oct. 21 caused the basis rate to touch the 20% level, which marks some excessive leverage from buyers. After three weeks ranging between 14% and 20%, the indicator dropped to the current 12%.
Although the basis rate remains neutral-to-bullish, it signals that some buyers' excess heat was terminated, which is essentially a healthy cleansing. Considering the drastic image portrayed by the ascending channel break, Ether traders should consider derivatives' data as a brief cool off period.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.
Recommended Content
Editors’ Picks
Bitcoin Price Forecast: Analysts anticipate increased volatility as the US presidential election looms
Bitcoin price teased its all-time high of $73,777 last week but declined to trade below $69,000 on Monday. Analysts suggest that market volatility is expected to rise as the US presidential election approaches.
Litecoin poised for double-digit decline after breaking ascending trendline
Litecoin breaks and closes below an ascending trendline, signaling a change in market structure. On-chain metrics paint a bearish picture, as LTC’s dormant wallets are active, and the NPL indicator shows a negative spike.
Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC, ETH and XRP decline ahead of US elections
Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP) all faced resistance at crucial levels ahead of the US Elections, leading to a price decline. As of Monday, they neared key support levels, and a firm close below these marks could signal further declines.
21Shares files S-1 for XRP ETF amid ongoing tension between Ripple and SEC
21Shares filed an S-1 registration with the Securities and Exchange Commission (SEC) on Friday for an XRP exchange-traded fund (ETF). While the chance of approval is slim with the current SEC administration, the landscape could change after the upcoming elections.
Bitcoin: New all-time high at $78,900 looks feasible
Bitcoin price declines over 2% this week, but the bounce from a key technical level on the weekly chart signals chances of hitting a new all-time high in the short term. US spot Bitcoin ETFs posted $596 million in inflows until Thursday despite the increased profit-taking activity.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.