Ethereum Dips 10%, But Healthy Bull Market Continues Amid Wider Sell-Offs
Summary:
Ethereum (ETH) saw a 10% decline on March 15, causing $126 million in forced liquidations in ETH futures. The dip echoed sell-offs in Bitcoin, the broader crypto market, and traditional financial assets. Despite speculation of a shift from a bullish trend, Ethereum has risen 57% year-to-date in 2024, and data from Ethereum futures and options markets suggest the bull market remains in good health. The U.S. Federal Reserve's upcoming meeting on March 20, which will determine the base interest rate, could however add to market pressure.
On March 15, Ethereum (ETH) dipped by 10%, falling to $3,567, its lowest level in more than seven days. This slump triggered forced liquidations within ETH futures amounting to $126 million. The dip has left investors evaluating whether it indicates a divergence from the previous bullish trend and speculating about the probability of returning to the $4,090 mark seen on March 12. The answer could potentially lie in the demand for Ethereum derivatives.
Just as ETH tumbled, other conventional financial assets were facing selling pressure. This decline resembles the downturns experienced by Bitcoin (BTC) and the broader crypto market, with Ether demonstrating no exceptional poor performance compared to the overall sector. Similar dynamics occurred in the stock market, with the S&P 500 index retracting by 1.1% after nearly hitting a record high of 5,257 on March 14. However, this doesn't necessarily reflect the sentiment among Ethereum investors.
Many analysts suggest that the desire to lock in profits is not exclusive to the crypto market. This is attested by the U.S. 2-year Treasury yield reaching 4.73% on March 15, its highest in over three months. An increased yield on fixed incomes points towards selling pressure with investors aiming for higher yields from these assets. Hence, regardless of if cryptocurrencies are perceived as risky investments or scarce alternatives, traders are gravitating towards cash for safety.
The upcoming meeting of the U.S. Federal Reserve (Fed) on March 20 will determine the base interest rate. With recent data on consumer inflation (CPI) and the producer price index slightly exceeding expectations, there is apprehension among investors that the Fed might retain interest rates at 5.25% longer than initially anticipated. This scenario exerts a downwards pressure on the economy and encourages fixed-income investments.
Thierry Wizman, a globally recognized FX and rates strategist at Macquarie, mentioned, “Not only 2024 and 2025, but the other factors that the Fed is keeping in mind include the frothy market situation.” As reported by CNBC, Wizman suggested that this might represent the Fed's conviction that long-term interest rates should be higher.
Despite current volatility and global economic uncertainties, Ethereum's year-to-date rise of 57% in 2024 can be interpreted as a significant vote of confidence. However, given the characteristically short-term approach of crypto investors, it's crucial to delve into the ETH futures and options markets to determine if the bullish thrust has faded in wake of the recent 10% price drop.
Contrary to the indication of stress or shift in trend, Ether's perpetual contracts (a.k.a. inverse swaps) include an embedded rate adjusted every eight hours. A positive funding rate indicates higher leverage demand from traders with long positions.
The data suggest that ETH funding rates have consistently stayed above 0.03% per eight-hour span, equating to approximately 0.6% weekly. Generally, these rates can exceed 2.1% weekly when traders overly optimistically view a bull market. This reveals that traders of perpetual futures did not flip to a bearish outlook during the price correction on March 15.
To understand if traders were caught off guard and wound up maintaining loss-incurring long positions, it's crucial to review the balance between call (buy) and put (sell) options. An increased demand for put options usually indicates that traders are bracing for neutral to bearish price swings.
Over the past ten days, the demand for Ethereum call options has outstripped that for protective puts by an average of 60%. This figure can be seen as neutral, given that crypto traders are generally bullish biased. Therefore, there’s no sign that the Ether derivatives market has significantly suffered when ETH prices dipped 10% temporarily on March 15. Indexes from the current Ethereum futures and options suggest that the bull market remains steady, indicating an ongoing healthy status.
This story does not provide investment guidance or suggestions. Every investment or trading action involves risk, and readers should perform their own research before making a decision.
Published At
3/15/2024 9:15:00 PM
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