Key Points:
Ethereum's adjustment aligns with the trends of other mainstream altcoins, with liquidations offset by stable open contracts.
Ethereum options and annualized funding rates indicate a weakening of bullish demand, but there are no signs of sell-offs triggered by related contract products.
Ethereum was affected by risk-averse sentiment in the cryptocurrency market, experiencing a 9.2% pullback within 12 hours. Bullish leveraged positions faced over $500 million in forced liquidations, but buyers actively entered around $4,150. Traders are discussing whether this sell-off was excessive and if there is still room for prices to drop below $4,000.
The downward trend of Ethereum is generally consistent with other mainstream altcoins, showing no special concerns within its ecosystem. Although the 24-hour liquidation volume for Ethereum futures has significantly increased, it mainly reflects a rise in open contracts and the widespread use of related contract products, rather than a signal of excessive bullish leveraged positions.
According to CoinGlass, the total open contracts for Ethereum futures on Sunday amounted to $63.7 billion. During the same period, SOL, XRP, BNB, and Cardano combined totaled $32.3 billion. On Monday, the open contract volume for Ethereum futures remained at 14.2 million ETH, roughly unchanged from the previous day, with newly opened leveraged positions offsetting the liquidation effect.
To assess whether Ethereum traders have changed their expectations after a sudden negative market event, one can refer to the ETH monthly futures premium. Under neutral conditions, these contracts typically trade 5% to 10% higher than the spot market to reflect a longer settlement period. When bearish demand is strong, the premium falls below this level.
The annualized premium for Ethereum monthly futures has dropped to a three-month low, indicating weak demand for leveraged bulls. Data shows that since Saturday, the Ethereum premium has fallen below the 5% neutral threshold, reflecting insufficient bullish confidence.
ETH perpetual contracts are an effective tool for gauging trader sentiment. Under neutral conditions, the annualized funding rate should range between 6% and 12%.
The annualized funding rate for Ethereum perpetual futures once fell to -6% but rebounded to -1% on Monday. This indicator had already dipped below the neutral 6% level on Thursday, suggesting that the wave of liquidations was primarily not caused by excessive bullish leveraged positions.
While some institutions may have taken overly optimistic positions, the initial trigger for Ethereum's weakness remains unclear, seemingly leading to panic selling among other cryptocurrency traders.
Ethereum options provide another way to test whether professional traders have positioned themselves in advance. If a few institutions shorted in advance, the demand for selling (put) options would significantly exceed that for buying (call) options. Typically, a selling options ratio exceeding 150% indicates strong market concerns about a correction.
Data from the Deribit platform shows that the sell/buy volume ratio for Ethereum options has remained around 80% from Wednesday to Sunday, consistent with the 30-day average. Overall, the data for Ethereum-related contract products reflects a weakening demand for bullish positions but does not indicate that the related contract market is the root cause of this decline.
On the other hand, evidence shows that futures liquidations primarily stem from panic selling, which has suppressed market risk appetite in the short term. However, considering that Ethereum's trend aligns with mainstream altcoins, this should not be a long-term concern. The rationale for Ethereum returning to $4,600 remains supported by increased corporate reserves and growing demand for spot Ethereum ETFs.
Related: JPMorgan CEO: The Federal Reserve will not cut interest rates before inflation declines, stablecoins pose no threat to banks.
Original: “Ethereum (ETH) Futures Turn Bearish — Is the Market Overreacting, or is a Drop to $3,800 Imminent?”
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