Traders watch for a trend reversal after Ethereum price fell to $ 4,100

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Ether (ETH) traders could have some reasons to panic after today’s drop fell 13% to $ 4,100. The rapid pullback appears to have broken a 55-day ascending channel that had a target of $ 5,500.

Ether / USD price at FTX. Source: TradingView

Those not worried about technical analysis will understand that the cryptocurrency’s daily volatility of 3.4% justifies the negative price spike of 10%. Nonetheless, external effects such as the approval of the US infrastructure law on Monday should not be ignored.

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Legislation requires that transactions in digital assets worth more than $ 10,000 be reported to the Internal Revenue Service. It remains unknown whether this will apply to individuals and companies developing blockchain technology and wallets.

In addition, on November 12, the US Securities and Exchange Commission officially rejected VanEck’s Spot Bitcoin Exchange Trade Fund application. The regulator cited “fraudulent and manipulative acts and practices” and the lack of transparency in Tether’s stablecoin (USDT).

Today’s liquidations were not significant

The unexpected ETH price move sparked the liquidation of leveraged long futures contracts valued at $ 200 million, but the open interest in Ether’s futures markets is still healthy.

The aggregated open interest of the ETH futures. Source: CoinGlass.com

Note that the $ 11.9 billion currently remaining for perpetual and quarterly futures contracts is 37% higher than it was two months ago. However, the number of leverage longs (buy) and shorts (sell) is matched at all times in each derivative contract.

Pro traders are no longer overly optimistic

The first step to determine if professional traders are bearish is to analyze the futures premium – also known as the base rate. This indicator measures the price difference between the futures contract prices and the regular spot market.

Ether’s quarterly futures are the preferred instruments of whales and arbitrage desks. While derivatives may seem complicated to retail investors because of their settlement date and the difference in price compared to the spot markets, the biggest benefit is the lack of a fluctuating funding rate.

Ether three-month futures base rate. Source: Laevitas.ch

The three-month futures typically trade at an annualized premium of 5% to 15%, which is viewed as an opportunity cost for arbitrage trading. By postponing the billing, sellers charge a higher price, which creates the price difference.

Related: The Power of Cheap Transactions: Can Solana Outpoke Ethereum’s Growth?

As illustrated above, Ether’s surge above $ 4,000 on October 21st caused the base rate to hit the 20% mark, which is undue leverage on the part of buyers. After three weeks between 14% and 20%, the indicator fell to the current 12%.

Although the base rate remains neutral to bullish, it signals that the excessive heat from some buyers has ended, which is essentially a healthy cleanup. Given the drastic picture conveyed by the ascending channel break, ether traders should view derivatives data as a brief cool-down.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.