Ethereum (ETH) Resilience Despite 10% Decline: Metrics Indicate Bullish Outlook
In the past week, the price of ETH, the second-largest cryptocurrency by market capitalization, has experienced a significant decline of 10%. The reason for this decline was the resistance level at $1,724, which was stronger than traders expected. As a result, the correction was enough to break the six-week ascending channel.
Despite this price decline, ETH’s derivative metrics did not turn bearish. This price resilience is partly due to the failure of some other smart contract Web 3 competitors. For example, Solana, a blockchain platform that claims to be the fastest in the world, experienced a nearly 24-hour outage after a network upgrade.
Similarly, Nem, a blockchain platform that focuses on providing decentralized services, had a chain stop for almost 17 hours on Monday. A bug caused the chain stop in Nem’s software, which affected the blockchain’s ability to process transactions.
ETH Futures Showing Demand for Bulls
In the futures market, there has been an increase in demand for leverage longs for ETH. According to CoinTelegraph, the annualized two-month futures premium typically trades between 5% and 10% in healthy markets, covering costs alongside the risks associated with futures trading. However, if the contract changes hands at a discount, also known as backwardation, it shows a lack of confidence in investors, which is a bearish indicator.
According to the crypto analysis outlet, traders were bullish when the futures were hovering around the 5% threshold, showing resilience even as the price of ETH declined by over 9.8% in the same period. It indicates that traders are confident that the price of ETH will recover shortly.
The demand for leverage longs in the futures market can be seen as a positive indicator of ETH’s price. Leverage longs are a way for traders to increase their exposure to the price of an asset, and an increase in demand for leverage longs suggests that traders believe the price of ETH will rise in the future.
Risk Metrics Indicate Resilience in the ETH Market Despite Price Dip
Despite the sharp 10% downturn in ETH’s price, risk metrics indicate resilience in the cryptocurrency market. One such metric is the Delta Skew, which indicates when market makers and arbitrage traders are overcharging for downside protection or vice versa.
In bear markets, investors give higher odds for price dumps, causing the indicator to rise above 10%. On the flip side, bullish markets usually tend to move the skew below the -10% level, putting selling options in less demand. Since Monday, the skew was fluxing around the 9% level, signaling stress for traders.
However, on the last day of February, the index moved to 5, which is a positive sign. This movement suggests that traders are becoming more confident in the market and that the demand for downside protection has decreased.
