Traders watch for a trend reversal after Ethereum price drops to $4,100

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Ether (ETH) traders might have some reason to panic after today’s 13% drop to $ 4,100. The quick withdrawal appears to have broken a 55-day ascending channel that had a target of $ 5,500.

Ether / USD price at FTX. Source: TradingView

Those who don’t mind technical analysis will understand that the cryptocurrency’s 3.4% daily volatility justifies the negative 10% price change. Still, one should not overlook externalities such as the approval of the US infrastructure bill on Monday.

The law requires that transactions of digital assets valued at more than $ 10,000 be reported to the Internal Revenue Service. It is still unclear whether this will apply to individuals and businesses developing blockchain technology and wallets.

In addition, on November 12, the United States Securities and Exchange Commission formally rejected VanEck’s request for a Bitcoin spot exchange-traded fund. The regulator cited “fraudulent and manipulative acts and practices”, as well as the lack of transparency on Tether’s stablecoin (USDT).

Today’s liquidations weren’t important

The unexpected move in ETH prices has triggered $ 200 million in leveraged long term futures sellouts, but open interest in Ether futures markets is still healthy.

ETH futures are a pool of open interest. Source: CoinGlass.com

Notice how the $ 11.9 billion currently in place for perpetual and quarterly futures contracts is 37% higher than two months ago. However, the number of long (buy) and short (sell) leverage is matched at all times in any derivative contract.

Pro traders are no longer overly optimistic

To determine if professional traders are trending down, one should start by analyzing the term premium, also known as the base rate. This indicator measures the price difference between the prices of futures contracts and the regular spot market.

Quarterly Ether Futures are the preferred instruments of whales and arbitrage bureaus. Even though derivatives may seem complicated to retail traders due to their settlement date and the price difference compared to spot markets, the most important benefit is the absence of fluctuating funding rates.

Base rate on three-month ether futures. Source: Laevitas.ch

Three-month futures contracts typically trade at an annualized premium of 5-15%, which is considered an opportunity cost for arbitrage trades. By postponing settlement, sellers demand a higher price, resulting in the price difference.

Related: The power of cheap transactions: Can Solana’s growth overtake Ethereum?

As illustrated above, Ether’s surge beyond $ 4,000 on October 21 caused the base rate to hit the 20% level, which marks excessive leverage on the part of the investors. buyers. After three weeks varying between 14% and 20%, the indicator has fallen to 12% currently.

While the base rate remains neutral to bullish, it indicates that some buyers’ excess heat has ended, which is essentially a healthy cleanup. Given the drastic picture portrayed by the breaking of the ascending channel, Ether traders should view derivatives data as a brief period of reflection.

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