Ethereum (ETH) saw a sharp decline of 10% to $3,567 on March 15, hitting its lowest point in over a week. This drop triggered $126 million in forced liquidations in ETH futures. Now, investors are questioning if this indicates a shift away from the recent bullish trend and considering the possibility of revisiting the $4,090 level seen on March 12. The answer may lie in the demand for Ethereum derivatives.
The recent downturn in ETH has raised doubts about the future of web 3.0, as it is closely tied to the success of cryptocurrencies. Many are wondering about the differences between web 1.0, 2.0, and 3.0, and if web 3.0 is truly here. Additionally, the emergence of the creator economy on web 3.0 has sparked interest in alternative platforms. It is important to understand the distinctions between web 1.0, 2.0, and 3.0, as well as the potential for web 4.0, in order to navigate the ever-evolving landscape of the internet.
The sell pressure was felt across traditional financial assets
On March 15, Ether saw a decline that mirrored the drops seen in Bitcoin (BTC) and the wider cryptocurrency market, showing no significant underperformance compared to the overall sector. Similarly, the S&P 500 index dropped by 1.1% after nearly reaching a new all-time high of 5,257 on March 14. However, this does not necessarily reflect the sentiment of ETH investors.
Some experts believe that the trend of taking profits is not unique to the crypto markets, as evidenced by the U.S. 2-year Treasury yield reaching 4.73% on March 15, its highest point in over three months. An increase in yield on fixed income assets indicates selling pressure, as investors seek higher returns. Therefore, whether cryptocurrencies are viewed as risky investments or scarce alternatives, traders are turning to cash for security.
The U.S. Federal Reserve (Fed) is set to announce the base interest rate at its upcoming meeting on March 20. Investors are concerned that recent data on consumer inflation (CPI) and the producer price index, which were slightly above expectations, may lead the Fed to maintain interest rates at 5.25% for a longer period of time. This possibility puts downward pressure on the economy and favors fixed-income investments.
According to Macquarie’s global FX and rates strategist Thierry Wizman, “I think the other issue here is not just the 2024 and 2025, it’s the other issues that the Fed is considering, which includes the market being too frothy.” As reported by CNBC, Wizman suggests that this could indicate the Fed’s belief in the need for higher long-term interest rates.
Despite the current volatility and uncertainty in global economies, the fact that Ether has seen a 57% increase year-to-date in 2024 should be seen as a strong vote of confidence. However, given the typically short-term outlook of crypto investors, it is important to examine the ETH futures and options markets to determine if the bullish momentum has weakened after the recent 10% price drop.
Ether derivatives remain steady with no indications of stress or change in trend
Perpetual contracts, also known as inverse swaps, have a built-in rate that is recalculated every eight hours. A positive funding rate indicates a higher demand for leverage from traders holding long positions.
The data reveals that ETH funding rates have consistently stayed above 0.03% per eight-hour period, equivalent to 0.6% weekly. Typically, when traders are overly optimistic about a bull market, these rates can skyrocket to over 2.1% per week. However, it is evident that traders in perpetual futures did not shift to a bearish stance during the March 15 correction.
To determine if traders were caught off guard and are now holding long positions at a loss, it is important to analyze the balance between call (buy) and put (sell) options. An increase in demand for put options usually suggests that traders are preparing for neutral to bearish price movements.
In the last 10 days, the demand for Ether call options has exceeded that for protective puts by an average of 60%. This ratio can be considered neutral, especially since crypto traders tend to lean towards bullish positions. Therefore, there is no indication that the Ether derivatives market was significantly affected by the 10% drop in ETH price on March 15. Based on the current state of Ether futures and options, the bull market remains strong, with indicators pointing towards continued growth.
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