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Ether drops below $3,800, but traders are unwilling to short at current levels

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Abstract:Marcel Pechman Jan 01, 2022 Ether drop

  Marcel Pechman

Ether drops below $3,800, but traders are unwilling to short at current levels

  Ethereum network saw a nine-fold increase in its smart contract deposits, but a descending channel continues to pressure the price.

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  Market Analysis

  Even though Ether (ETH) reached a $4,870 all-time high on Nov. 10, bulls have little reason to celebrate. The 290% gains year-to-date have been overshadowed by Dec.'s 18% price drop. Still, Ethereum's network value locked in smart contracts (TVL) increased nine-fold to $155 billion.

  Looking at the past couple of months' price performance chart doesn't really tell the whole story, and Ether's current $450 billion market capitalization makes it one of the world's top 20 tradable assets, right behind the two-century-old Johnson & Johnson conglomerate.

  2021 should be remembered by the decentralized exchanges' sheer growth, whose daily volume reached $3 billion, a 340% growth versus the last quarter of 2020. Still, crypto traders are notoriously short-sighted, accentuating the impact of the ongoing downtrend channel.

Derivatives markets do not reflect panic selling

  To understand whether bearishness has been instilled, one must analyze the futures' funding rate. Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Those measures are established to avoid exchange risk imbalances. A positive funding rate indicates that longs (buyers) demand more leverage.

  However, the opposite situation occurs when shorts (sellers) require additional leverage, and this causes the funding rate to turn negative.

  As depicted above, the eight-hour fee has been ranging near zero in December, indicating a balanced leverage demand from buyers and sellers. Had there been some panic moments, it would have been reflected on such derivatives indicators.

Top traders are increasing their bullish bets

  Exchange-provided data highlights traders' long-to-short net positioning. By analyzing every client's position on the spot, perpetual and futures contracts, one can better understand whether professional traders are leaning bullish or bearish.

  There are occasional discrepancies in the methodologies between different exchanges, so viewers should monitor changes instead of absolute figures.

  Despite Ether's 9% correction since Dec. 24, top traders on Binance, Huobi and OKEx have increased their leverage longs. To be more precise, Binance was the only exchange facing a modest reduction in the top traders' long-to-short ratio. The figure moved from 0.98 to 0.92. However, this impact was more than compensated by OKEx traders increasing their bullish bets from 1.67 to 3.20 in one week.

  Currently, there is hardly a sense of bearishness present in the market. According to the data, pro traders are buying the dip while retail investors' net demand for shorts (sell) hardly changed throughout the past month. Of course, none of that can predict whenever Ether will flip the current descending channel, but one might infer that there's little interest in betting on the downside from here.

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

  •   #Huobi

  •   #Ethereum

  •   #Markets

  •   #Derivatives

  •   #OKEx

  •   #Futures

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