Here’s why pro traders barely flinched with today’s 8% price drop on Ethereum


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On December 17, the price of Ether (ETH) rose to $ 677, its highest level since May 2018, and it appears that the price of the highest altcoin was propelled above $ 21,000 by the rapid movement of Bitcoin (BTC). It is also possible that the CME’s announcement of the ETH Futures launch also played a role.

Solid fundamentals and positive news flow also appear to be helping Ether hold above $ 640 for the past few days, and despite today’s dump, those fundamentals remain. The Eth2 stake exceeded the total suspended value of $ 1 billion. This shows that big players are committed to long term as it is not currently possible to redeem these tokens.

To understand whether the recent pump is reflecting temporary arousal or possibly a new price level, usage metrics on the Ethereum network should be measured.

An excellent starting point is analyzing transactions and transferring values.

ETH / USD price vs. Transactions and transfers. Source: DigitalAssetsData

The graph above shows how much the indicator recovered after a brief decline on December 15th. The sustained level of transactions and transfers of more than $ 2 billion per day signals a significant improvement over the past two months.

Hence, the move to $ 640 was in line with Ethereum’s blockchain activity.

Exchange will resume

Increasing withdrawals from exchanges can be caused by a number of reasons, including staking, crop farming, and buyers sending coins to a cold store. As a rule, a steady flow of net deposits indicates a short-term willingness to sell.

ETH / USD price (red) vs. Exchange net flow. Source: Nansen & CoinMarketCap

Between December 16 and 18, 232,000 ether deposits were recorded on the stock exchanges, reversing a 14-day trend. During those two weeks, withdrawals exceeded deposits by 470,000. This shows that there was selling pressure when the price of Ether was above $ 600.

It’s worth noting that December 19 marked a net withdrawal of 293,000 ethers, the largest outflow since October 14. Thus, the initial movement of investors rushing to take profits above $ 600 may have dissolved.

Although it is too early to determine if a second wave of deposits will hit the exchanges, the indicator shows that traders are ready to accumulate at the current price level.

The futures premium peaked but has since returned to normal

Professional traders tend to dominate longer-term futures contracts with fixed expiration dates. By measuring the cost gap between futures and the regular spot market, a trader can measure the degree of upward movement in the market.

The three month futures should normally trade at a premium of 1.5% or more compared to regular spot exchanges. Anytime that ad fades or goes negative, it’s an alarming red flag. This situation is known as “backwardation” and indicates that the market is turning bearish.

March 2021 ETH futures premium. Source: Digital Assets Data

The graph above shows that the indicator hit a high of 5.8% on December 19, but was later adjusted to 5% when ether stabilized near $ 650. Persistent values ​​above 3.5% indicate optimism, although by no means exaggerated.

The current rate of over 4%, however, corresponds to an annualized premium of 17% and is well above the level of the previous months. This shows that despite the December 19th weakness, professional traders remain confident that Ether has bullish potential.