Economic Factors and ETF Uncertainty Turn Ether Investors Bearish
Summary:
Ether (ETH) investors have turned bearish following a shock as its price neared the $3,500 mark, leading to a $90 million liquidation of leveraged longs in two days. The decline was mostly due to global economic factors such as US Federal Reserve's interest rate projections and surging US unemployment claims. Despite usually favorable conditions for risk-on assets like Ether with weakening economic indicators, the absence of a US spot Ether exchange-traded fund (ETF) and delay in individual Ether ETF approval contribute to a climate of uncertainty for potential investors.
On June 11, Ether (ETH) prices approached $3,500 resulting in a $90 million loss in ETH leveraged longs in a span of two days. This decline was mostly propelled by global economic developments such as a changed forecast by the U.S. Federal Reserve and U.S. unemployment data. According to a couple of critical measures, it appears Ether investors have switched to a bearish sentiment.
On June 12, the U.S. Federal Reserve revealed their interest rate forecasts, disappointing risk-prone investors by stating that four officials do not anticipate any changes until 2024 ends. The remaining 15 officials anticipated one or two cuts by year-end, reducing the appeal to move away from fixed-income assets. However, Federal Reserve Chair, Jerome Powell, reassured that their focus lies on labor market and price stability when deciding monetary policy.
According to reports from the U.S. Labor Department on June 13, the number of Americans applying for new unemployment benefits had risen to a 10-month high of 242,000 in the prior week. Oliver Allen, the senior U.S. economist at Pantheon Macroeconomics, voiced to Yahoo Finance that elevated long-term rates, rigorous credit conditions, and slowly declining demand are beginning to negatively affect businesses, especially smaller ones.
Generally, weak global economic indicators are beneficial for risk-prone assets like Ether, potentially influencing the Federal Reserve to enact interest rate cuts earlier in response to economic frailness. However, there is no assurance that investors will look towards alternative assets such as cryptocurrencies when faced with a daunting economic environment, especially with the absence of a U.S. spot Ether exchange-traded fund (ETF), further fueling uncertainty.
Eleanor Terrett, a Fox Business journalist, delineated that Gary Gensler, Chair of the U.S. Securities and Exchange Commission, suggested that approval of the S-1 filings for individual Ether ETFs could be delayed by up to three months. This setback and factors like a decrease in decentralized applications activity are causing investors to be wary about purchasing bullish ETH derivatives.
The delta skew metric evaluates the demand for bullish versus bearish options. A negative skew infers more demand for call options (buy), and a positive skew signals a preference for put options (sell). Between June 11 and June 12, the Ether 25% delta skew entered the bullish sphere as it dips below -7%. However, positive sentiment dwindled on June 13 when Ether couldn't retain its position over the $3,600 mark.
Retail traders frequently choose perpetual futures that accurately trace the price fluctuations of the underlying spot markets. To keep risk exposure uniform, a fee is enforced every eight hours known as the funding rate. This rate turns positive when buyers (longs) desire more leverage and becomes negative when sellers (shorts) necessitate extra leverage.
The Ether perpetual funding rate is presently stable at 0.01” per eight hours, equivalent to 0.2% per week, which is seen as neutral. When activity levels are heightened, the weekly cost for leveraged long positions can shoot up to 1.2%. Interestingly, the funding rate was at 0.035% per week on June 6, showing a significant decline in sentiment over the week.
Given the failure of Ether derivatives to sustain optimism levels despite the promise of an upcoming U.S. spot ETF and weakening job market data, the odds of ETH surpassing $3,700 in the foreseeable future has diminished.
This text is merely for informational purposes and is not intended to be taken as legal or financial advice. It solely represents the author’s views and does not necessarily reflect Cointelegraph's views or opinions.
Published At
6/14/2024 4:15:23 PM
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