Look down!Ethereum Derivatives Data Hints at Further Downside for ETH

Ether (Ethereum) is down 38% in three weeks, and the current $2,000 level is 59% below its all-time high of $4,870 set in November 2021.Other news streams adding to the current broad volatility in the market are bankruptcy fears in the wake of Coinbase, the largest U.S. exchange Reported a loss of $430 million in the first quarter of 2022.

In its most recent 10-Q filing, Coinbase included the following disclosures:

“In the event of bankruptcy, the crypto assets we hold on behalf of our clients may be subject to bankruptcy proceedings.”

Regulatory uncertainty is also partly responsible for ether’s sharp pullback. On May 11, South Korean newspaper Kukmin reported on a leaked draft of the upcoming government’s “Digital Assets Basic Act (DABA)” bill.the administration South Korea wants to introduce regulatory framework A 20% tax is imposed on initial coin offerings (ICOs) and on crypto gains over $2,100 per year.

Another factor affecting the market is investor confidence in stablecoins. On May 11, USD Tether (USDT), the largest stablecoin by market capitalization, below the peg, is trading below $0.99 on major exchanges. However, Paulo Ardoino, CTO of Tether and Bitfinex, stressed that USDT has remained stable through multiple black swan events and “continues to process redemptions as normal.”

Options traders reluctant to offer downside protection

To understand how large traders are positioned, one should look at Ether’s futures and options market data. A 25% delta skew is a telltale sign whenever arbitrage desks and market makers overcharge for upside or downside protection.

If these traders are concerned about a collapse in the price of ether, the skew indicator will exceed 10%. On the other hand, general excitement reflects a negative 10% bias. That’s why this indicator is called the professional trader’s fear and greed indicator.

ETH 30-day options 25% delta skew: Source: Laevitas.ch

The skew indicator has been above 10% since April 23 and surged to a peak of 29% on May 12. In addition to indicating extreme fear among options traders, the metric reached its highest level ever.

The past three weeks have shown a marked deterioration in sentiment, with the current 27% delta skew showing a clear unbalanced risk of unexpected up and down price swings.

related: Untethered – Here’s everything you need to know about TerraUSD, Tether and other stablecoins

Long and short data confirms traders are avoiding risk

Top traders’ net-long-to-short ratios exclude external factors that may affect specific derivatives. By analyzing the positions of these top clients in spot, perpetual and futures contracts, it is possible to better understand whether professional traders are bullish or bearish.

There are occasional differences in methodology between different exchanges, so viewers should focus on changes rather than absolute numbers.

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

Even as ether tumbled 29 percent since March 11 to a low of $1,700, professional traders trimmed their bullish bets based on bullish and bearish indicators. OKX’s top trader ratio fell from 1.25 to its current level of 0.85.

Binance data also showed that these traders’ long positions decreased from 1.03 to 0.98, while on Huobi, it remained unchanged at 1.00. This suggests that there has been little to no buying activity by whales and market makers amid a sharp pullback in ether prices.

There is simply no way to whitewash Ethereum’s current derivatives data, as both metrics reflect a lack of confidence among professional investors. Options traders are charging exorbitant fees for downside protection, suggesting that ether could fall below $1,700 based on risk metrics.

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