Ethereum derivatives look bearish, but traders believe ETH is in the bottom

Ether (ETH) regained critical support at $1,200, rising 5.5% in the early hours of November 29. However, when analyzing a broader time frame, the negative performance of 24% over the last 30 days has a significant impact on investor sentiment. Moreover, after BlockFi filed for bankruptcy on November 28, investor sentiment soured.

Newsflow remained negative after the US Treasury’s Office of Foreign Assets Control (OFAC) announced a settlement with the Kraken exchange in “clear violation of sanctions against Iran.” On Nov. 28, OFAC said in a statement that Kraken agreed to pay more than $362,000 as part of the settlement “to resolve its potential civil liability.”

Moreover, on November 28, institutional crypto financial services provider Silvergate Capital denied rumors that it had significant exposure to BlockFi’s bankruptcy. Silvergate added that its losses were less than $20 million in digital assets and reiterated that BlockFi is not a custodian for its crypto-collateralized loans.

Traders fear that Ether will fall below $800 if the bear market continues, but some also question the risk of insecurity. One example comes from cryptocurrency Twitter trader @CryptoCapo_:

I spent hundreds of hours analyzing the market to come to this conclusion:

Capitulation is a matter of time. $BTC should reach 12k, $ETH 600-700, altcoins should drop 40-50% and shitcoins 50%+.

I won’t be posting any more here until it’s confirmed or invalidated.

Good luck!

— Crypto Capo (@CryptoCapo_) November 28, 2022

Let’s take a look at Ether derivatives data to understand if worsening market conditions are affecting crypto investor sentiment.

Pro traders are slowly coming out of the panic level

Retail traders typically avoid quarterly futures because of the price difference from spot markets. They are the preferred instruments of professional traders because they avoid the fluctuations in funding rates that often occur in a standing futures contract.

The annual premium on two-month futures should trade between +4% and +8% in healthy markets to cover costs and associated risks. So when futures trade at a discount relative to conventional spot markets, it indicates lack of confidence from leverage buyers – a bearish indicator.

The chart above shows that derivatives traders remain short as the Ether futures premium is negative. Nevertheless, on November 29, it showed at least some modest progress. Bears may highlight how far we are from a neutral-bull 0% to 4% premium, but the result of a 71% decline in one year is significant. .

Still, traders should analyze Ether’s options markets to rule out externalities inherent in the futures instrument.

Options traders do not expect a sudden rally

A 25% delta curve is a sign that market makers and arbitrage tables are overloaded for upside or downside protection.

In bear markets, option investors place higher odds on price declines, causing the skew to rise above 10%. On the other hand, bull markets tend to pull the skewness indicator below -10%, meaning that low-priced put options are discounted.

The delta skew decreased last week, indicating that options traders are more comfortable offering downside protection.

As the 60-day delta curve is 18%, whales and market makers are identifying a higher bullish probability for Ether. Consequently, both the options and futures markets are pointing to pro traders fearing a retest of $1,070 as the natural course for ETH.

On an optimistic note, data from on-chain analytics firm Glassnode shows that the November 2022 selloff was the fourth largest selloff for Bitcoin (BTC). The move caused a loss worth $10.2 billion in 7 days.

As a result, the odds have tipped for Ether holders, and those currently placing bullish bets – as opposed to ETH derivative metrics – will ultimately come out ahead.