December 7, 2023

The price of Ether (ETH) is up 60% since May 3rd, outperforming leading cryptocurrency Bitcoin (BTC) by 32% during that time. However, the data shows that the current support at $1,600 lacks strength as network usage and smart contract deposit metrics weakened. Additionally, ETH derivatives are experiencing increasing selling pressure from traders.

The positive price movement is mainly due to the growing certainty of the “Ethereum Merger” transition to a proof-of-stake (PoS) consensus network in September. During the Ethereum Core developer conference call on July 14, developer Tim Beiko suggested September 19 as a tentative target date. Additionally, analysts expect the new ETH supply to drop by as much as 90% after the network’s monetary policy change, so it will be a bullish catalyst.

The total value of Ethereum Locked (TVL) benefited greatly from the collapse of the Terra ecosystem in mid-May. Investors have moved their decentralized finance (DeFi) deposits to the Ethereum network thanks to its strong security and battle-tested applications, including MakerDAO (MKR) – the project behind the DAI stablecoin.

Total value locked by market share. Source: Defi Llama

The Ethereum network currently has a 59% market share of TVL, up from 51% on May 3, according to data by Defi Llama. Despite the increase in stake, Ethereum’s current $40 billion in smart contract deposits looks small compared to the $100 billion seen in December 2021.

The demand for using decentralized applications (DApps) on Ethereum seems to have weakened, given the median transfer fees or gas costs, which currently stand at $0.90. This is a sharp drop from May 3, when network transaction costs topped $7.50 on average. However, one could argue that the higher usage of layer-2 solutions like Polygon and Arbitrum are responsible for the lower gas fees.

Options traders are neutral, stepping out of the “fear” zone.

To understand how whales and traders are positioned, traders should look at Ether derivatives market data. In this sense, the 25% skew delta is a telltale sign whenever professional traders overcharge for upside or downside protection.

If investors expect the price of Ether to rise, the skew indicator moves to -12% or lower, reflecting generalized enthusiasm. On the other hand, a deviation above 12% shows a reluctance to adopt bearish strategies, typical of bear markets.

30 Day Ether Options 25% Skewed Delta: Source:

For reference, the higher the index, the less willing traders are to face downside price risk. As seen above, the indicator skewed out of “fear” mode on July 16 as ETH broke above the $1,300 resistance. Thus, these options traders no longer have a higher chance of a market downturn as the divergence remains below 12%.

Related: Ethereum Will Outpace Visa With zkEVM Rollups, Says Polygon Co-Founder

Margin traders reduce their bullish bets

To confirm whether these moves were limited to the particular options instrument, margin markets should be analyzed. Lending allows investors to leverage their positions to buy more cryptocurrencies. When these savvy traders open their margin markets, their profits (and potential losses) depend on the rise in the price of Ether.

Bitfinex margin traders are known to create position contracts of 100,000 ETH or higher in a very short period of time, indicating the participation of whales and large arbitrages.

Big margin ETH Bitfinex. Source: Coinglass

Long margin ETH peaked at 500,000 ETH on July 2nd, the highest level since November 2021. However, data shows that these savvy traders have scaled back their bullish bets as the ETH price recovered some of its losses. The data shows no indication that Bitfinex margin investors are expecting the 65% correction from May to below $1,000 in mid-June.

Options risk metrics show that professional traders are less afraid of a potential crash, but at the same time, margin players have eased bullish positions as the ETH price tries to build support at $1,600.

Obviously, investors will continue to monitor the impact of nominal TVL deposits and demand for smart contracts on grid gas charges before making additional bullish bets.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.