Ethereum price hits lowest level against Bitcoin in 5 months
The previous six months were said to have been extremely beneficial for Ether’s (ETH) price, especially after the project’s most significant upgrade ever in September 2022. However, the reality was the opposite: between September 15, 2022 and March 15, 2023, Ether underperformed Bitcoin (BTC) by 10%.
The 0.068 ETH/BTC price ratio had held since October 2022, a support that was broken on March 15. Whatever the reason for the underperformance, traders currently have little confidence in placing stake bets, according to ETH futures and options data.
But first one should consider why the price of Ether was expected to rise in the previous six months. On September 15, 2022, the merger took place, a hard fork that switched the network to a proof-of-stake consensus mechanism. It allowed for a much lower, even negative, coin issuance rate. But more importantly, the change paved the way for parallel processing that aimed to bring scalability and lower transaction costs to the Ethereum network.
The Shapella hard fork, which is expected to go live on the mainnet in April, is the next step in the Ethereum network upgrade. The change will allow validators who have previously deposited 32 ETH to enter the staking mechanism to fully or partially withdraw. While this development is generally positive because it gives validators more flexibility, the potential 1.76 million ETH unlock is a negative consequence.
However, there is a cap on the number of validators that can be terminated; therefore, the maximum daily bet is 70,000 ETH. Furthermore, after exiting the validation process, one can choose between Lido, Rocket Pool or a decentralized finance (DeFi) application for return mechanisms. These coins will not necessarily be sold on the market.
Let’s look at Ether derivatives data to understand if the recent drop below the 0.068 ETH/BTC ratio has affected investor sentiment.
ETH futures recovered from a state of panic
In healthy markets, the annual 3-month futures premium should trade between 5% and 10% to cover associated costs and risks. However, when the contract trades at a discount (backward) to traditional spot markets, it indicates traders’ lack of confidence and is seen as a bearish indicator.
Derivatives traders became uncomfortable holding leveraged long (bull) positions when the Ether futures premium moved below zero on March 11, down from 3.5% just two days before. More importantly, the current 2.5% premium remains modest and far from the 5% neutral-to-bullish threshold.
Nevertheless, declining demand for leverage longs (bulls) does not necessarily imply an expectation of negative price action. As a result, traders should examine Ether’s options markets to understand how whales and market makers price the probability of future price movements.
Related: Lark Davis on Battling Social Media Storms and Why He’s an ETH Bull – Hall of Flame
ETH options confirm lack of risk appetite
25% delta bias is a clear sign when market makers and arbitrage tables are overcharging for upside or downside protection. In bear markets, option investors place higher odds on a price dump, causing the bias indicator to rise above 8%. On the other hand, bullish markets tend to drive the bias metric below -8%, meaning the bearish put options are less in demand.
On March 3, the delta bias crossed the bearish 8% threshold, indicating stress among professional traders. Fear levels peaked on March 10, when the price of Ether plunged to $1,370, a 56-day low, although the price of ETH rebounded above $1,480 on March 12.
Surprisingly, on March 12, the 25% delta bias gauge continued to rise, reaching its highest level of skepticism since November 2022. That happened just hours before Ether’s price rose 20% in 48 hours. That explains why ETH traders shorting futures contracts faced $507 million in liquidations.
The 3% delta bias metric currently signals a balanced demand for ETH call and put options. Combined with the neutral stance on the ETH futures premium, the derivatives market indicates that professional traders are hesitant to place either bullish or bearish bets. Unfortunately, ETH derivative calculations do not favor traders who expect Ether to regain the 0.068 level against Bitcoin in the near term.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.