Multiple data points show that investors are strongly bullish on the Ethereum price even after today’s strong rejection of USD 1,160.
On January 4th, the price of Ether (ETH) rose to USD 1,160, followed by a 24% correction in the following 4 hours.
What is clear is that investors are eagerly awaiting the launch of CME’s ETH futures which is scheduled for February 8th. Another factor driving the current rally is that Ether’s miners‘ balances reached a two-year low, a scenario that some analysts see as bullish.
The phenomenal growth of the total blocked value in DeFi projects has also played a role, especially considering that the metric reached USD 17.5 billion last week.
For the moment, positive news flow and solid fundamentals seem to be in play for Ether, but it is still important to try to understand if the recent drop reflects a local high potential or if it was simply a new test of $900 as a new support level.
In addition to price action and technical analysis, investors should also look at the network usage metrics in the Ethereum network. An excellent place to start is by analyzing transactions and value transfers.
The graph above shows that the indicator exceeds $4 billion in daily transactions, a 73% increase compared to $2.6 billion the previous month. This remarkable increase in the value of transactions and transfers reflects the strength of the signals and also suggests that Ether’s price is sustainable at current levels.
Withdrawals from the Exchanges are paused for now
The increase in withdrawals from exchanges can be due to multiple reasons, including staking, yield farming and buyers sending coins into cold storage. Generally, a steady flow of net deposits indicates a willingness to sell in the short term.
From December 1 to December 19, exchanges faced 600,000 ETH in net withdrawals. This movement indicates a potential accumulation of whales, either by transferring to cold wallets or by placing those Bitcoin Profit scam in the DeFi ecosystem.
It is worth noting that during the last two weeks there has been some stabilization. Sales activity was expected as the price of the Ether peaked and this led to larger deposits. Therefore, the indicator remains slightly positive.
The futures premium peaked, but nothing abnormal has occurred
Professional traders tend to dominate longer term futures contracts with set expiration dates. By measuring the spending gap between futures and the regular spot market, a trader can gauge the level of optimism in the market.
3-month futures should generally be traded at a premium of 1.5% or more compared to regular spot exchanges. Any time this indicator fades or becomes negative, it is a worrying warning sign. This situation is known as backwardation and indicates that the market is becoming bearish.
The chart above shows that the indicator peaked at 6.4% on January 4th when Ether touched its highest price since May 2018. The current rate above 4.7% equates to a 20% annualized premium and is significantly above the levels seen in previous months. This data shows that despite the recent fall of USD 280, professional traders still have confidence in Ether’s price potential.
Spot volume soared during the rally
In addition to monitoring futures contracts, profitable traders also track volume in the spot market. Breaking resistance levels with low volumes is intriguing because low volumes usually indicate a lack of confidence. Therefore, major price changes must be accompanied by solid trading volume.
The previous two days saw an impressive average volume of $8 billion and this is considerably higher than the trend of the past few weeks. The new price highs accompanied by volume peaks are an excellent indicator of sustainable price levels.
This event is especially true considering that the recent 42% movement occurred since December 30th, when the traditional markets closed. If there had been low volume days recently, investors would have wondered what was really behind the increase to USD 1,160.
Buy/Sell Option Ratio
By measuring whether there is more activity in call or put options, the overall market sentiment can be determined. Generally speaking, call options are used for bullish strategies, while put options are used for bearish ones.
A buy/sell ratio of 0.70 indicates that the open interest of put options lags behind the more bullish call options by 30% and therefore the sentiment is bullish.
Since December 25th, investors have been trading a higher volume of put options. Therefore, the indicator increased to 0.81 from 0.65. This indicates a reversal of the trend from a more upward movement that lasted two weeks. Despite the protection-seeking movement, put options still lag behind the more bullish call options by 19%.
This data is very encouraging, considering that Ether has recovered by 60% since December 25th, but there are no signs that investors have opted for more neutral to bearish strategies (put options).
Despite some signs of weakness after Ether hit its high of USD 1,160 on January 4th, each of the five indicators discussed above has maintained a bullish level.
When Ether managed to recover quickly from her recent fall of less than USD 900, investors gained more confidence that the uptrend has not been broken.