Traders panic after seeing ether drop 13% to $ 4,100 today. The rapid pullback appears to have broken out of the 55-day ascending channel with the target at $ 5,500.
Ether price chart | Source: TradingView
Those who are not concerned about technical analysis will understand that the cryptocurrency’s 3.4% daily volatility justifies the 10% negative price fluctuations. However, external factors should not be overlooked, such as the US passage of an infrastructure bill on Monday (November 15th).
The law requires that transactions in digital assets worth more than $ 10,000 be reported to the Internal Revenue Service (IRS). It is not yet known if this applies to individuals and companies developing blockchain technology and wallets.
In addition, on November 12, the US Securities and Exchange Commission officially rejected VanEck’s application to register for a spot Bitcoin ETF. The regulatory authority cited “fraud and manipulation practices” as well as a lack of transparency at Stablecoin Tether (USDT) as reasons for the rejection.
Liquidation on the futures market is negligible
The unexpected price movement resulted in the liquidation of $ 200 million long positions in the futures market, but the open interest (OI) for Ether futures is still good.
Ether. Futures OI aggregation | Source: CoinGlass.com
Note that there is currently $ 11.9 billion remaining in quarterly and perpetual futures contracts, 37% more than two months ago. However, the leverage levels long (buy) and short (sell) are matched at all times in each derivative contract.
Professional traders are no longer overly optimistic
To determine if professional traders are trending down, we should start by analyzing the futures contract premium, also known as the base rate. This indicator measures the price difference between the futures contract price and the regular spot market.
The quarterly ether futures are the favorites of whales and arbitrage. While derivatives may seem complicated to retail investors because of the settlement dates and spread over the cash market, the biggest benefit is the lack of funding rates.
Base rate of the three-month ether futures contract | Source: Laevitas.ch
Three-month futures contracts typically trade at an annual premium of 5% to 15%, which is considered an opportunity cost for arbitrage. By deferring payment, the seller demands a higher price, which creates the price difference.
As noted above, Ether’s breakthrough above $ 4,000 on October 21 brought the base rate to 20%, which is undue leverage for buyers. After three weeks with fluctuations between 14% and 20%, the index has fallen to 12% for the time being.
While the base rate remains neutral to bullish, it signals that buyer overexcitation is over, which is essentially a healthy adjustment. With the channel rupture on the rise, ether traders should view the derivative dates as a period of cooling off.
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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
According to Cointelegraph