Based on derivatives data, Ethereum bears seem to be in the lead, but how long will that last?

Key points: 

• Ether prices fell to bottom at $1,074 — the lowest level since July.
• The chart of the 2-month futures annualized premium shows that derivatives traders have been bearish since November 10, when the Ether futures contango turned negative.
• The 60-day options delta skew is currently at 23%, leading to a higher likelihood of whales and market makers pricing higher odds of price dumps for Ether. 
• According to the data, Ethereum bulls should not throw in the towel as these indicators tend to be backward-looking.

Ether prices fell 11.9 percent from Nov. 20-22 to bottom at $1,074 — the lowest level since July. Investors are currently concerned as crypto lending firm Genesis reportedly struggles to raise capital and sparked bankruptcy rumors on Nov. 21.

Concern over the centralization of decentralized finance (DeFi) comes after Uniswap Labs changed its privacy policy on Nov. 17, suggesting it collects publicly available blockchain data, user browsing information, operating system data, and Service Provider Interactions.

However, a spokesperson for Genesis told that there are no plans for imminent bankruptcy as the company continues discussions with creditors.

To add insult to injury, the hacker behind the $447 million theft from the FTX exchange was caught moving his Ether funds. On November 20, the attacker transferred 50,000 ETH to a separate wallet and converted it to Bitcoin using two renBTC bridges.

Traders fear hackers could drive down the price of Ether to profit from leveraged short bets. On November 15, the rumor was spread by Quinton Hills, but Twitter did not make it public.

Let’s take a look at ether derivatives data to see if deteriorating market conditions have affected crypto investor sentiment.

Professional traders have been in a state of panic since November 10th

Quarterly futures are typically avoided by retailers because of the price differential from the spot market, but they are the vehicle of choice for professional traders because they avoid the volatility in funding rates that often occurs with perpetual futures contracts.

In a healthy market, three-month futures should trade at an annualized premium of +4% to +8% to cover the costs and risks involved. The chart above shows that derivatives traders have been bearish since November 10, when Ether futures contango turned negative.

Contracts are currently in backwardation, a situation that is atypical and generally considered bearish. The metric did not improve after ETH surged 5% on Nov. 22, reflecting professional traders’ reluctance to add to leveraged long positions.

Traders should also analyze Ether's options market to rule out futures instrument-specific externalities.

Options traders fear more crashes

A delta skew of 25% is a clear indication that market makers and arbitrage desks are overcharging for upside or downside protection.

In a bear market, options investors offer a higher chance of price dumping, causing the skewness indicator to rise above 10%. On the other hand, a bullish market tends to push the skew indicator below -10%, which means bearish puts are discounted.

Since November 9, the delta skew has been above the 10% line, suggesting options traders are less willing to offer downside protection. Things got worse over the next few days as the delta skew indicator rose above 20%.

The 60-day delta skew is currently at 23%, leading to a higher likelihood of whales and market makers pricing higher odds of price dumps for Ether. As a result, derivatives data showed a lack of confidence just as Ether struggled to hold the $1,100 support level.

According to the data, Ethereum bulls should not throw in the towel as these indicators tend to be backward-looking. The panic over FTX’s bankruptcy and subsequent liquidity problems at Genesis could dissipate quickly if public evidence of exchange reserves and institutional investors’ increased exposure to Bitcoin during the downturn is interpreted positively by market participants.

That being said, Ethereum bulls still have the upper hand for now, according to the ETH derivatives indicator.