Ethereum Volatility

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The recent trajectory of Ether’s price has been a rollercoaster ride, facing formidable challenges. On September 11, the altcoin faced a pivotal test when it plummeted to the $1,530 support level. However, in the subsequent days, Ether (ETH) executed a remarkable recovery, surging by 6%. This resurgence marks a potential turning point after a month of enduring losses, where ETH slumped by 16%.

Quest for $1,850: Derivatives and Network Activity as Clues

While this swift recovery is promising, it has raised questions among investors about the feasibility of Ether reclaiming the $1,850 mark. We must delve into the world of ETH derivatives and network activity to unravel this puzzle.

Macroeconomic Factors and Their Influence

Macroeconomic factors have played a significant role in counteracting investor pessimism. The United States is grappling with escalating inflation, as confirmed by the latest Consumer Price Index report, which indicates a 3.7% increase. This data reinforces the belief that the U.S. government will continue accumulating debt, necessitating higher yields on Treasury offerings.

In this environment, scarce assets are poised to benefit from inflationary pressures and the expansive monetary policies addressing budget deficits. However, the cryptocurrency sector confronts its unique set of challenges.

Regulatory Uncertainty and High Network Fees

The spectre of regulatory action looms over Binance, with the U.S. Department of Justice potentially pursuing charges against the platform. Additionally, Binance.US has become embroiled in legal battles with the U.S. Securities and Exchange Commission, resulting in layoffs and top executives departing.

Beyond regulatory hurdles, the Ethereum network has witnessed a notable decline in innovative contract activity, integral to its original purpose. The network grapples with high average fees, hovering above the $3 mark.

Declining DApp Activity and Centralization Concerns

Over the past month, the top Ethereum decentralized applications (DApps) have experienced a 26% decrease in active addresses. Notably, the Lido liquid staking project bucked this trend, seeing a 7% increase in total value locked (TVL) in ETH terms. However, Lido’s dominance, comprising 72% of all staked ETH, has garnered criticism.

Vitalik Buterin, Ethereum’s co-founder, acknowledges the need for greater accessibility for everyday people to run nodes to maintain decentralization. However, he doesn’t anticipate a viable solution within the next decade. Consequently, concerns about centralization, including the influence of services like Lido, linger among investors.

Derivatives Metrics: What Professional Traders Say

A closer look at derivatives metrics offers insight into how professional traders perceive the current market conditions. Ether monthly futures typically trade with a 5 to 10% annualized premium, known as contango, a common occurrence in crypto markets.

However, the premium for Ether futures recently hit its lowest point in three weeks, at 2.2%. Therefore, this indicates a lack of demand for leveraged long positions, even after the 6% gain following the retest of the $1,530 support level on September 11.

Options Markets: A Glimpse into Market Sentiment

However, to gauge market sentiment effectively, it’s essential to consider the options markets. The 25% delta skew can confirm whether professional traders lean bearish. A skew above 7% suggests an expectation of Ether’s price drop, while periods of excitement often result in a -7% skew.

On September 14, the Ether 25% delta skew indicator briefly shifted to bullish. This shift was driven by put (sell) options trading at an 8% discount compared to similar call (buy) options. However, this sentiment waned on September 15, with both call and put options trading at a similar premium. Ether derivatives traders show reduced interest in leveraged long positions despite the successful defence of the $1,530 price level.

Conclusion: Ether’s Path Forward

In summary, Ether faces potential catalysts such as requests for a spot ETH exchange-traded fund and macroeconomic factors influenced by inflation. However, challenges like declining DApp usage and regulatory uncertainties cast a shadow of fear, uncertainty, and doubt (FUD). Given these circumstances, it seems probable that Ether’s price will continue to face downward pressure, rendering the prospect of a short-term surge to $1,850 increasingly improbable.

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