The data shows that Ethereum options traders are less bearish than before. But lower gas fees and smart contract deposits offer little hope to ETH bulls. On this topic, cryptocurrency analyst Marccel Pechman shared 3 metrics that show Ethereum’s weakness.
3 key derivatives metrics show $1,600 Ethereum support weak
Ethereum has gained 60% since May 3. During this time, it outpaced Bitcoin by 32%. However, data shows that current $1,600 support is lacking in strength as network usage and smart contract deposits weaken. Also, ETH derivatives are showing increased selling pressure on leveraged positions.
The positive price action was primarily driven by the increasing certainty of the merge, which is Ethereum’s transition to the PoS consensus network. During the Ethereum core developers conference call on July 14, Tim Beiko suggested September 19 for the update. Additionally, analysts expect the supply of new ETH to decrease by up to 90% after the network’s monetary policy change. Thus, the bullish catalyst for the bulls will be ready.
Ethereum TVL benefited from Terra’s collapse
Investors have shifted their DeFi deposits to the Ethereum network, including MakerDAO (MKR), the project behind the DAI stablecoin.
Currently, the Ethereum network owns 59% of TVL, up from 51% on May 3, according to data from Defi Llama. Despite gaining shares, Ethereum’s current $40 billion deposits in smart contracts are on the decline. This amount is quite small compared to the $100 billion seen in December 2021.
DApp usage on the Ethereum network is weak given the gas costs currently at $0.90. That means a sharp drop from May 3, when their cost averaged over $7.50. It could be argued, though, that higher use of Polygon and Arbitrum are lower gas fees.
Options traders are neutral and exit the “fear” zone
To understand how whales and market makers are positioned, investors should look at Ethereum’s derivatives market data. In this sense, a 25% delta skew is an important sign when professionals overcharge for up or down protection. If investors wait for the price of Ethereum to rise, the skewness indicator moves to -12% or lower, reflecting generalized excitement. On the other hand, a skewness of more than 12% indicates reluctance to take bullish strategies typical of bear markets.
For reference, the higher the index, the less inclined traders are to price downside risk. As in the chart, the skew indicator broke out of “fear” mode when ETH broke above the $1,300 resistance on July 16. Therefore, these options traders no longer have a higher probability of a market drop as the skew remains below 12%.
Traders shrink their leveraged positions
Margin markets should be analyzed to verify whether these movements are limited to the particular option instrument. Lending allows investors to leverage their position to buy more cryptocurrencies. When these savvy traders open margin longs, their gains (and potential losses) depend on Ethereum’s price increase.
Ethereum margin longs have peaked since November 2021 with 500,000 ETH on July 2. However, data shows these savvy traders are shrinking their bullish positions as ETH rallies. The data shows no evidence that Bitfinex margin users are expecting a 65% correction from May to mid-June below $1,000.
Options risk metrics show that professional traders are less afraid of a possible collapse. But at the same time, leveraged traders are loosening their bullish positions as ETH tries to establish support at $1,600. It looks like investors will continue to monitor the effects of nominal TVL deposits and smart contract demand on network gas fees before placing additional bullish bets. cryptocoin.comAs you follow, Ethereum spent most of August 4 below $1,600.
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