Ether (ETH) traders may have some reason to panic after today's 13% drop to $ 4,100. The rapid pullback appears to have broken a 55-day ascending channel that had a target at $ 5,500.
Those who are not concerned with technical analysis will understand that the cryptocurrency's 3.4% daily volatility justifies the negative 10% price swing. Still, externalities such as those in the United States should not be ignored. infrastructure bill approval on Monday.
The legislation requires digital asset transactions worth more than $ 10,000 to be reported to the Internal Revenue Service. Whether that will apply to individuals and companies developing blockchain technology and wallets is unknown.
Furthermore, on November 12, the United States Securities and Exchange Commission officially denied VanEck Spot Bitcoin request for application of traded funds. The regulator cited "fraudulent and manipulative acts and practices," along with a lack of transparency in the Tether stablecoin (USDT).
Today's sales were not significant
The unexpected ETH price movement triggered $ 200 million in liquidations of leveraged long futures contracts, but open interest in the Ether futures markets remains healthy.
Notice how the current $ 11.9 billion still in effect for quarterly and perpetual futures contracts is 37% higher than two months ago. However, the number of long (buy) and short (sell) leverage is matched at all times in any derivative contract.
Professional traders are no longer overly optimistic
To determine whether professional traders are skewing lower, you start by looking at the futures premium, also known as the base rate. This indicator measures the price gap between the prices of futures contracts and the regular spot market.
Ether quarterly futures are the preferred instruments of the whales and the trading desks. Although derivatives can seem complicated to retail traders due to their settlement date and the difference in price from the spot markets, the most significant advantage is the lack of a fluctuating funding rate.
Three-month futures generally trade at an annualized premium of 5% to 15%, which is considered an opportunity cost for arbitrage trading. By postponing the sale, sellers demand a higher price and this causes the price difference.
Related: The Power of Cheap Transactions: Can Solana's Growth Outperform Ethereum?
As shown above, Ether's surge of over $ 4,000 on Oct 21 caused the base rate to touch the 20% level, marking excessive leverage on the part of buyers. After three weeks hovering between 14% and 20%, the indicator dropped to the current 12%.
Although the base rate remains neutral to bullish, it indicates that the excess heat from some buyers has ended, which is essentially a healthy cleanse. Considering the drastic picture represented by the breakout of the ascending channel, Ether traders should consider the derivatives data as a short cool-down period.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.
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