Key insights reveal that even with an 8% rebound in Ethereum's price, traders remain cautious as indicated by the ETH futures premium and put options skew. Despite this price uptick, Ethereum faced a 49% decline in weekly fees due to decreased decentralized exchange (DEX) activity, contrasting with a 9% increase in fees for Tron and Solana.
On Tuesday, Ether (ETH) saw an 8% gain but halted near $3,000 as derivatives markets expressed skepticism about further growth. This movement aligned with a broader rally in the cryptocurrency market, driven by expectations of new economic stimulus following stress in Japan's government-bond market. Sentiment improved with investors anticipating a shift towards less restrictive U.S. monetary policy, especially after the Federal Reserve (Fed) ended its balance-sheet reduction on December 1. Traders are also anticipating an interest-rate cut on December 10. Additionally, U.S. financial institutions have significantly boosted their use of repurchase agreements, adding liquidity to short-term funding markets.
The tech-heavy Nasdaq index has nearly recovered its losses from November, now trading about 3% below its all-time high. However, ETH derivatives suggest limited confidence among bullish traders. On Tuesday, the annualized premium on ETH monthly futures compared to spot markets remained at 3%, similar to the previous week, signaling weak demand for leveraged long positions, a likely result of Ether's 22% drop over the past month.
Ether's slower performance compared to the U.S. stock market is concerning as global economic policies become more expansionist. The Fed injected $13.5 billion through overnight funding on December 1, marking the second-highest level in over five years. This facility had previously held over $2.5 trillion in 2022 after stimulus measures and low-interest rates but was later reduced as participants sought higher returns elsewhere.
Other factors affecting crypto demand include concerns over excessive investment in artificial intelligence infrastructure and increased regulatory pressure on stablecoins. Additionally, China's central bank has vowed to intensify its crackdown on money laundering and unauthorized cross-border transfers involving digital assets.
Professional Ether traders remain wary of potential downside risks, a sentiment reflected in the persistent stress observed in options markets. ETH put options were trading at a 6% premium over call options, typically indicative of bearish conditions, a shift from a neutral 4% skew observed on Friday. This change suggests lingering restraint among traders, even as the rally in U.S. equities points to an improved risk appetite.
Ethereum network fees have dropped to their lowest in over three years, reducing to $2.6 million over a week, down from $5.1 million four weeks earlier. This decline partly results from reduced activity on decentralized exchanges, where volumes fell to $13.4 billion from a peak of $36.2 billion in August. Meanwhile, rival blockchains Tron and Solana recorded a 9% increase in seven-day fees.
Concerns grew further with the movement of a dormant Ether whale on Sunday, which transferred 40,000 ETH to a new address, leading to speculation about a potential sale. The upcoming Fusaka upgrade on December 3 aims to enhance scalability and improve wallet management for Ethereum. Despite these developments, the demand for decentralized applications has decreased, leading to lower fees, and there is currently limited evidence that ETH is set to outperform the broader cryptocurrency market.
This article is intended for general informational purposes only and should not be considered as legal or investment advice. The opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph.