The price of Ether (ETH) plunged below $3,000 for the first time in 50 days on July 5. The drop was part of a broader cryptocurrency market correction, largely influenced by Bitcoin (BTC). Now, traders are concerned that the crypto bull market is over, and some are concerned that the price of Ether could continue to fall, despite the upcoming launch of a spot Ethereum exchange-traded fund (ETF) in the United States.
Ether’s drop below $3,000 comes just as the cryptocurrency markets corrected.
On July 5, the total market cap of all cryptocurrencies fell below $2 trillion, the first time since February 26. Ether’s 18% drop from $3,450 to $2,815 was simply the equivalent of a 16% drop in the sector over a three-day period, with no apparent cause other than the overall deterioration in sentiment toward cryptocurrencies. Analysts say the drop was driven by increased selling pressure on Bitcoin.
On July 7, the Mt. Gox bankruptcy estate transferred 47,229 bitcoins worth $2.6 billion to a new address. The move is part of a process to start paying off creditors as some of the bitcoins were transferred to the Bitbank exchange’s hot wallet. This has raised concerns that this could have a negative impact on the BTC price, as the coins, which have been locked for over a decade, could put up a selling pressure of up to $4.5 billion.
In addition to this pressure, the German government has moved 7,583 BTC to exchanges since June 19, which is worth $415 million. Even more shockingly, the total coins held by the German authorities is 42,274 BTC, worth over $2 billion. The fear, uncertainty, and doubt (FUD) caused by these massive transactions resulted in $936 million of leveraged long positions being liquidated over a three-day period, including $235 million in Ether futures.
Traders are concerned that the crypto bull market of 2024 may be over, especially since the downtrend coincided with the S&P 500 hitting a new high on July 5. Stock markets reacted positively to the US report that the unemployment rate rose to 4.1% in June. When the economy weakens, central banks tend to cut interest rates, making bonds less attractive.
Ether derivatives indicators do not show significant hedging.
Despite the favorable scenario for risk assets, Ether and other cryptocurrencies have failed to maintain their bullish momentum. Some market participants believe that the launch of a spot Ethereum ETF in the US could have a positive impact on the price of Ether, but given the current lack of investor interest in the sector, it is still difficult to predict potential inflows. In this situation, Ether traders have become less optimistic, as evidenced by derivatives indicators.
In neutral markets, Ethereum monthly futures contracts typically trade at a 5-10% premium to the ETH spot market to compensate for the longer settlement period.
According to data, the annualized ETH futures premium fell to 8% on July 5, down from 11% a week earlier. This level is not particularly surprising, but it is noteworthy given that traders are expecting a positive impact from the upcoming launch of a spot Ether ETF.
Related: How the U.S. Jobs Market Downturn Could Boost Bitcoin Prices
It is helpful to analyze the Ether options market to assess whether hedging demand has increased since the recent price correction. Typically, when traders expect the price to fall, the ETH options skew indicator will rise above 7%. Conversely, bullish periods are often marked by skews below -7%.
The Ether options skew has remained relatively stable at -5% over the past week. In addition, the last time it entered bullish territory was on June 26, indicating that the prevailing neutral sentiment has been dominant for more than a week. On the positive side, there has been no excessive demand for downside protection while the Ether price has fallen below $3,000.
Despite the 15% correction, ETH derivatives have shown relative resilience. This does not necessarily mean that ETH will quickly reclaim the $3,300 support level, but it does suggest that professional traders are not rushing to prepare for further declines or to prepare for further price declines.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.