Ether’s price plunged 7% between June 14 and June 15, reaching its lowest level in three months and impacting investors’ view that the altcoin was en-route to turning $2,000 to support.
It is worth noting that the $1,620 bottom represents a $196 billion market capitalization for Ether (ETH), which is higher than PetroChina’s $186 billion and not far from chipmaker AMD’s $198 billion.
Being the 66th largest global tradable asset is no small feat, especially considering that the cryptocurrency is merely eight years old and does not return any kind of direct profit for the project’s maintenance. On the other hand, securities enjoy the benefits of corporate earnings and eventual government subsidies, so perhaps investors should be concerned by the recent price drop in Ether.
Ether price pressured, succumbs to regulation and lowered network activity
Regulatory pressure helped to subdue investors’ appetite for Ether as the Securities and Exchange Commission proposed a rule change regarding the definition of an exchange. Paul Grewal, chief legal officer of the Coinbase exchange, has pushed back against the proposed change, claiming that it violates the Administrative Procedure Act.
More concerningly, decentralized application (DApp) usage on the Ethereum network failed to gain momentum despite gas fees plummeting by 75%. The seven-day average transaction cost dropped to $4 on June 14, down from $16 one month prior. Meanwhile, DApp active addresses declined by 18% in the same period.
Notice that the decline happened across the board, affecting decentralized finance, nonfungible token marketplaces, gaming and collectibles alike. Curiously, the total value locked (TVL), which measures the deposits locked in Ethereum’s smart contracts, declined by a mere 2% versus mid-May to 14.6 million ETH, according to DefiLlama.
To analyze the odds of Ether’s price breaking below the $1,650 support, one should check for a reduced ETH futures premium and increased costs for protective put options.
Ether quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.
As a result, ETH futures contracts in healthy markets should trade at a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.
According to the futures premium, known as the basis indicator, professional traders have been avoiding leveraged longs (bullish bets). Despite the modest improvement to 2%, the indicator remains far from the neutral 5% threshold.
To exclude externalities that might have solely impacted the Ether futures, one should analyze the ETH options markets. The 25% delta skew indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put option premium is higher than the call options.
The skew indicator will move above 8% if traders fear an Ether price crash. On the other hand, generalized excitement reflects a negative 8% skew. As displayed above, the delta skew has been signaling fear since June 10 and peaked at 21% on June 15 — the highest level in three months.
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Ether’s price looks poised to drop down to $1,560
Investors tend to focus solely on short-term price movements and forget that Ether’s price is up 37% year-to-date in 2023. Moreover, by relying too much on Ethereum’s $24 billion in TVL, traders might have missed the signals of weakening demand for DApp use.
For now, bears have the upper hand considering the ETH derivatives metrics, so a retest of the $1,560 support is the most likely outcome. That does not mean that the 2023 gains are at risk, but until the regulatory FUD — fear, uncertainty and doubt — dissipates, bulls will have a hard time moving Ether above the $1,750 resistance.
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