Ethereum Struggles at $2,000: Analyzing Futures, Memecoin Frenzy, and Fed Impact

Ethereum fluctuating near $2,000, stormy skies reflecting uncertainty, professional traders hesitant, memecoin frenzy, shadowy Pepe figure, high Ethereum transaction fees, layer-2 solutions causing vulnerability, Ethereum Foundation selling cryptocurrency, $30 million sale, Fed impact, neutral outlook, call-to-put delta skew, traders exhibiting caution, possible bearish bets in future.

Ether (ETH) recently surpassed the $2,000 mark on May 6, only to retreat back to its familiar range between $1,820 and $1,950, where it has remained for the past three weeks. Data on Ether futures and options suggests the likelihood of Ether breaking below the $1,820 support level. Professional traders appear hesitant to add neutral-to-bullish positions using derivative contracts, which might influence the price.

Interestingly, the memecoin frenzy, which increased Ethereum network demand, did not boost investors’ confidence. The average Ethereum transaction fee climbed to $27.70 on May 6, its highest in a year. The insatiable demand for memecoins, such as Pepe (PEPE), is seen as one of the leading causes for the hike. Higher gas fees have also led users to layer-2 solutions, which some interpret as a potential vulnerability since it can result in a decrease in the total value locked (TVL) by removing deposits from the Ethereum chain, particularly in decentralized finance (DeFi) applications.

The inability of Ether to break the $2,000 mark can be partially attributed to the Ethereum Foundation’s $30 million sale of the cryptocurrency. Nearly 20,000 ETH were sent to the Kraken cryptocurrency exchange, with the last significant transfer occurring in November 2021 when the price peaked at around $4,850 before dropping 80%.

The recent 4.9% U.S. April Consumer Price Index (CPI) data released on May 10 has reinforced expectations of stable interest rates for the next Federal Reserve meeting in June. CME Group’s FedWatch tool indicates a 94% chance of rates remaining within the current 5% to 5.25% range. Hence, with no signs of a Fed pivot in sight, demand for risk-on assets like cryptocurrencies may remain under pressure. However, if investors perceive Ether’s chances of breaking its current sideways movement to be higher, this could be evidenced through the ETH futures contract premium and elevated prices for protective put options.

The subsequent caution exhibited by Ether traders is evident in the lack of surge in demand for leverage longs during the recent rally above $2,000 on May 6. The current 1.4% ETH futures premium signifies a complete absence of appetite from buyers using derivative contracts.

A neutral outlook has prevailed in ETH options’ 25% call-to-put delta skew over the past two weeks, with protective put options trading at fair prices compared to similar neutral-to-bullish call options. This may indicate that professional traders have little confidence in Ether’s potential, particularly considering the 10.6% rally from May 2-6. In this scenario, weak derivatives indicators may become more bearish if the sideways movement breaks to the downside.

In summary, should Ether’s price drop below $1,820, it is likely that there will be increased demand for bearish bets using ETH derivatives, possibly signaling distrust and a lack of interest in long positions.

Source: Cointelegraph

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