Steinbeck’s Take on ETH’s Downward Spiral 📉

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It was the best of times, it was the worst of times, and Ether (ETH) found itself in the latter category, just like the rest of the crypto market. But here’s a twist: the market intelligence platform Nansen, with its eagle-eyed analysis of Ethereum derivative metrics, has spotted a modest downside tail risk on the horizon. 🌪️

Nansen’s report, a beacon of hope in the fog of market uncertainty, suggests that current implied volatility levels for ETH hint at low expected price movement. However, the wise analysts at Nansen warn that this might be a bit of a miscalculation, given the recent price wobbles. 🤔

From February 25 onwards, Nansen took a deep dive into Ethereum derivatives metrics on the Deribit exchange platform. The goal? To find a glimmer of hope for ETH’s price. What they found was a tale of two markets: while the ETH options market still had a bullish bias, the significant call-side positioning was looking increasingly precarious. This signaled a potential for more volatility, especially if the support levels at $2,200-$2,300 come under pressure. As of February 25, ETH was trading around $2,395, but by the time the report hit the wires, it had dipped to $2,200. 📉

The put/call ratio on February 25 stood at 0.46, indicating a call-side bias. The total open interest for Ethereum was over 1.860 million contracts, with more than 1.278 million calls and about 582,105 puts. Key strike concentrations for calls were between $2,700 and $3,100, while for puts, they were between $2,200 and $2,500. The 90-day implied volatility (IV) for calls was 78.57, while puts were 76.49, with a slightly call-favored skew of +2.08 points.

“The 90-day implied volatility data show current IV levels (calls at 78.57, puts at 76.49) are much lower than in past years. The chart below shows that from 2020-2022, these levels were typically between 120-140 during ‘regular’ market regimes and went above 160 during market stress. We observe a seemingly ‘break lower’ in implied vol from 2023 on,” Nansen noted.

Nansen further observed that the Ethereum IV levels suggested traders were not expecting much price movement. But, in a market where expectations can be as fickle as the weather, this might be a mistake. Ether’s price was hovering near key option strike levels, and market conditions were far from bullish. The $2,500 level, once a potential support, had now turned into immediate resistance. Dealer hedging, a strategy where traders enter positions to profit from potential losses, was likely to trigger selling pressure near this level. 🚨

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2025-03-02 13:41