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Monday, September 26, 2022

Ethereum Holds Above $3K But Data Suggests That Bull Might Get Trapped

Ethereum price broke from its long descending channel but points to a few bearish catalysts on the blockchain.

When analyzing Ethereum’s price chart, one could conclude that the 3-month long bearish trend has been broken for certain reasons. 

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The current $3,100 price range represents a 43% recovery in 15 days and, more importantly, the descending channel resistance was ruptured on February 7. 

Since the 55.6% correction from the $4,870 all-time high to the bottom at $2,160 on January 24, Bitcoin has failed to break the $45,500 resistance and traders concluded that a 12% correction was the most likely scenario.

On a different note, on February 7, Big Four auditor KPMG’s Canadian wing announced the addition of Bitcoin and Ether to its corporate treasury. 

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The decision reflects KPMG Canada’s belief that cryptocurrencies are a “maturing asset class,” according to Benjie Thomas who is a managing partner for the firm.

The Derivatives Data Tell Another Story For Ethereum

To understand how confident traders are about Ethereum’s recovery, one should analyze the perpetual contracts futures data. This instrument is the retail traders’ preferred market because its price tends to track the regular spot markets.

In any futures contract trade, longs and shorts are matched at all times, but their use of leverage varies. Consequently, exchanges will charge a funding rate to whichever side demands more leverage, and this fee is paid to the opposing side.

This indicator will tell us whether retail traders are getting excited, which would cause it to move above 0.05%, equivalent to 1% per week. Notice how the past couple of months showed a slightly negative funding rate, reflecting the bearish sentiment.

Currently, there is no sign that retail traders are confident enough to reopen leveraged long positions.

One should analyze the Ethereum network’s on-chain data to understand if the lack of confidence is specific to leverage trading. For example, even though there is no set relation between Ether’s price and network use, low transaction volume and a decline in active users could be a concern if decoupled from a price hike.

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