Between October 25 and October 26, there was a surprise increase of $250, which pushed the price of Ether (ETH) from $1,345 to $1,595. The move saw the liquidation of $570 million in bearish Ether bets on derivatives exchanges, the largest event in more than 12 months. The price of Ether also climbed above the $1,600 level, which was the highest price since September 15th.
Let’s see if this 27% increase over the last 10 days reflects any signs of a trend change.
It’s worth noting that three days later on October 29th, there was another 10.3% increase towards $1,650, which triggered another $270 million in liquidations by short sellers on ETH futures contracts. In total, $840 million worth of leveraged shorts were liquidated in three days, representing more than 9% of the total open interest in ETH futures.
On October 21, the market turned bullish after San Francisco Federal Reserve President Mary Daly mentioned intentions to reduce the pace of interest rate hikes. However, prior tightening by the US central bank led to a 19% decline in the S&P 500 in 2022.
Despite a 5.5% rise in the stock market between Oct. 20 and Oct. 31, ING analysts noted on Oct. 28 that “we do expect the Fed to open the door to a slower pace through formal guidance, but it won’t necessarily go through.” Additionally, the report ING added: “It’s possible we’ll get a final 50bp in February, which would then mark the peak. That would leave the final rate at 4.75% to 5%.”
Given the mixed signals from traditional markets, let’s take a look at Ether derivatives data to understand if investors are supportive of the recent price increase.
Futures traders remained bearish despite the $1,600 rally
Retail traders typically avoid quarterly futures due to their price differential compared to spot markets. Nevertheless, they are the preferred instruments of professional traders because they avoid the fluctuations in funding rates that often occur with temporary futures contracts.
The index should trade at a 4% to 8% annualized premium in healthy markets to cover costs and associated risks. Thus, the chart above clearly shows the dominance of bearish bets on ETH futures as its premium was in negative territory in October. Such a situation is unusual and typical of bear markets, reflecting the reluctance of professional traders to add leveraged long (bull) positions.
Traders should also analyze Ether options markets to rule out externalities specific to the futures instrument.
ETH options traders moved into a neutral position
A 25% delta skew is a telltale sign of when market makers and arbitrage tables are overbidding for upside or downside protection.
In bear markets, option investors place higher odds on a price decline, causing the bias to rise above 10%. On the other hand, bull markets tend to push the bias indicator below -10%, which means bearish put options are discounted.
The 60-day delta was above the 10% mark until October 25, and signal options traders were less inclined to offer downside protection. However, a significant change occurred in the following days as whales and arbitrage desks began to value the balanced risk of downward and upward price swings.
Liquidations show surprising movement but minimal buyer confidence
These two derivative metrics suggest that the 27% increase in Ether prices from October 21st to October 31st was not expected, which explains the huge impact on liquidations. In comparison, Ether’s 25% rise from August 4th to August 14th resulted in $480 million worth of leveraged short liquidations (sellers), roughly 40% less.
Currently, the prevailing sentiment is neutral according to the ETH options and futures markets. Traders are therefore likely to tread carefully, especially with whales and arbitrage tables on the sidelines during such an impressive rally.
Until the strength of the $1,500 support level is confirmed and the increased appetite of professional traders for leveraged bonds, investors should not jump to the conclusion that the ether rally is sustainable.
The views and opinions expressed here are solely those of the author and do not necessarily reflect those of Cointelegraph.com. Every investment and trading step involves risk, you should do your own research when making a decision.