Ethereum’s (ETH) bullish momentum faces a new test as derivatives markets show signs of exhaustion. Despite a recent rally that nearly touched $4,100, Ethereum futures have pivoted towards a bearish sentiment. This raises questions about whether the current correction is a temporary overreaction or the prelude to a deeper drop toward $3,800.
The Derivatives Thermometer Signals Caution
The main indicator of this caution comes from the premium on Ethereum futures (known as the “basis”). This key metric, measuring the difference between futures contracts and the spot price, plummeted significantly starting September 19. The annualized premium fell from 25%, a level considered euphoric, to a more moderate 18%. This indicates that professional traders are no longer paying an excessive premium for leveraged long positions.
This cooling coincided with the rejection of ETH’s price at the $4,092 resistance level. This failure to maintain momentum triggered forced liquidations of leveraged long positions, exacerbating the drop and tempering the immediate optimism. Although an 18% premium is still healthy in a bull market, the rapid contraction is an unequivocal sign that speculative demand is waning at current prices.
Why Did ETH Futures Cool Down?
This shift in sentiment is not happening in a vacuum. Ethereum’s market structure had been showing signs of overheating for weeks. Excessive leverage has been a constant concern, with the open interest ratio reaching elevated levels. When the price failed to hold above $4,000, the inevitable cascade of liquidations was triggered, purging excess leverage—a necessary but painful event for the market.
Ethereum futures are crucial because they reflect the expectations of more sophisticated traders, not just the retail investor. Their current bearish, or rather neutral, turn suggests a lack of confidence in the immediate continuation of the rally. This contrasts with the macro narrative, which remains positive due to the imminent approval of spot ETH Exchange-Traded Funds (ETFs) in the United States, an event expected to attract significant institutional capital.
The $3,800 Level in Analysts’ Sights
With Ethereum futures showing weakness, attention is turning to key support levels. Technical analysis and options data suggest that the $3,800 mark is the next critical psychological and technical support. If this level breaks, analysts warn that a deeper correction could materialize, seeking liquidity at lower levels before attempting another assault on the highs.
The options market corroborates this uncertainty. The “skew” (25-delta skew), which compares the relative cost of bullish call options versus bearish put options, has returned to neutral territory. During the rally, this metric showed a clear preference for calls. Now, traders are no longer paying extra for upside protection, adopting a “wait-and-see” stance that reflects the market’s indecision.
Market Overreaction or Warning Sign?
The long-term bullish narrative for Ethereum, driven largely by the anticipation of spot ETH ETFs, remains intact. However, the short-term data from Ethereum futures paints a picture of caution and consolidation. This current pullback appears to be a healthy market digestion after a parabolic rally, rather than a macro trend reversal. It is a necessary purge of excessive leverage before the next bullish phase.
Investors are now watching two critical factors: whether the $3,800 support can hold against the decreased risk appetite in the derivatives markets, and how the market will react to ETF news. ETH’s next move will depend on whether spot demand, driven by long-term investors, can absorb the current weakness from futures speculators. The key question remains whether this is just a pause or the start of a more severe correction.
