The price of Ethereum has been facing some strong resistance, and on September 11, the altcoin’s price endured a severe test, falling to support at $1,530. In the following days, Ethereum (ETH) staged an impressive recovery, surging 6%. After ETH fell 16% in a month, this recovery may mark a critical moment.
Despite Ethereum’s faster recovery, its price performance has still raised questions among investors as to whether it has the potential to rise back to $1,850, and ETH derivatives and network activity may hold the key to solving this puzzle.
Macroeconomic factors played an important role in easing investor pessimism, as U.S. inflation accelerated for the second consecutive month to 3.7%, according to the latest Consumer Price Index report. The data reinforces the belief that U.S. government debt will continue to soar, forcing the Treasury Department to offer higher yields.
Scarce assets are expected to benefit from inflationary pressures and expansionary monetary policy aimed at narrowing budget deficits. However, the cryptocurrency industry is dealing with its own set of challenges.
Regulatory uncertainty and high network fees limit investor appetite
Binance faces the looming possibility of prosecution by the U.S. Department of Justice. Additionally, Binance US has been embroiled in a legal dispute with the U.S. Securities and Exchange Commission, which has resulted in layoffs and executive departures.
In addition to the regulatory hurdles facing the cryptocurrency, the Ethereum network has also seen a significant decline in smart contract activity, which was core to its original purpose. The network is still grappling with continued high average fees, hovering above $3.
Over the past 30 days, the number of active addresses for top Ethereum decentralized applications (DApps) has decreased by an average of 26%. One exception to this trend is the Lido liquid staking project, which has seen a 7% increase in total value locked (TVL) in ETH over the same period. It’s worth noting that Lido’s success has also been criticized for the project’s dominance, which accounts for 72% of all staked ETH.
Ethereum co-founder Vitalik Buterin admitted that Ethereum needs to make it easier for ordinary people to run nodes in order to remain decentralized in the long term. However, Buterin does not foresee a viable solution to this challenge within the next decade. Therefore, investors have legitimate concerns about centralization, including the impact of services like Lido.
ETH futures and options show reduced leveraged long interest
Looking at derivatives indicators will better explain where professional Ethereum traders are positioned in current market conditions. Ethereum monthly futures typically trade at an annualized premium of 5% to 10%, a condition known as contango, which is not unique to the cryptocurrency market.
Ethereum futures premium hit its lowest in three weeks at 2.2%, indicating a lack of demand for leveraged long positions. Interestingly, even the 6% rally following the retest of $1,530 support on September 11 failed to push ETH futures to the neutral 5% threshold.
One should pay attention to the options market to get a better gauge of market sentiment, as a 25% delta deviation can confirm whether professional traders are leaning bearish. In short, if traders expect Ethereum prices to fall, the bias indicator will rise above 7%, while the bias in euphoric times is usually -7%.
On September 14, the Ethereum 25% Delta Bias indicator briefly turned bullish. The shift was driven by put (sell) option trades, which traded at an 8% discount compared to similar call (buy) options. However, this sentiment weakened on September 15, with calls and puts trading at similar premiums. Essentially, despite successfully holding the $1,530 price level, Ethereum derivatives traders have shown less interest in taking leveraged long positions.
On the one hand, Ethereum has potential catalysts, including demand for spot Ethereum exchange-traded funds and macroeconomic factors driven by inflationary pressures. However, declining DApp usage and continued regulatory uncertainty have created fertile ground for FUD – fear, uncertainty, and doubt. This may continue to put downward pressure on Ethereum price, making a rally to $1,850 appear unlikely in the short to medium term.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.