Expected US exchange-traded funds (ETFs) that invest directly in Ether (ETH) will begin trading in mid-July.
Ahead of the debut, the trends in the ether options market on Deribit closely mirror the sentiment in Bitcoin (BTC) options six months ago before the BTC ETF, except for one key difference that may be crucial for traders.
At press time, 30-day ether options, which measure how much traders are willing to pay for an asymmetric payout to the upside or downside, were hovering around 3%, according to Amberdata.
A positive value indicated a willingness to pay relatively more for call options, offering buyers an asymmetric payoff to the upside over the next four weeks. A call gives the holder the right to buy the underlying asset at a predetermined price within a specific time frame and represents an upside bet. A put represents a bearish bet.
Ether calls that expire in six months also traded at a premium to puts, with a spread of around 5%.
In other words, traders use options to position for the power of ether heading into the ETF’s debut and over the next six months. Traders employed a similar strategy for roughly two weeks prior to the start of BTC ETF trading on January 11. In early January, BTC’s 30-day and 180-day variances were around 3.5% and 5%, respectively.
The bullishness in the ether market is consistent with expectations that spot ether ETFs, which allow investors to gain exposure to assets without owning them, will unlock billions of dollars in mainstream institutional demand. BTC ETFs have attracted over $14 billion in net inflows to flip side investors to date.
“The upcoming launch of the ETH ETF is likely to have a much more significant impact on ETH as it brings in a new wave of investors. Since the supply of ETH is highly concentrated among long-term players, ETF inflows could have an outsized effect if they were proportionally so large, how his bitcoins got,” analyst firm IntoTheBlock reported in the latest edition of its weekly newsletter.
30-day bitcoin options flipped bearish on Jan. 10, signaling a renewed bias toward puts as traders prepare for a classic sell-the-fact pullback following the ETF’s debut.
The price of BTC fell by more than 15% through January 23, testing lows below $40,000 before hitting new record highs above $70,000 in March.
Thus, Ether traders might want to watch for a potential bearish reversal in the 30-day options bias over the next few days.
The only difference in how Ether options are currently priced compared to Bitcoin in January suggests that the Ether market is not as euphoric as BTC was seven months ago. This perhaps weakens the arguments for retracting the fact.
BTC’s seven-day divergence has shown a stronger call bias than the 30-day divergence several times before the ETF’s debut, a sign of heightened optimism or expectations of an imminent price increase.
Investors typically expect higher uncertainty or volatility in the distant future compared to the short term, which ensures that longer duration deviations will return higher value than shorter ones. This is the case in the ether market, where the 7-day divergence remains below the 30-day divergence, showing a relatively moderate bullish bias.
Note that market sentiment is gloomier than late 2023 and early January. Ether has fallen from $4,000 to $3,350 since late May as it failed to keep up with Bitcoin’s rise to new record highs in the first quarter.
This is probably because several analysts are not sure that demand for ether ETFs will match the benchmark set by bitcoin ETFs. “Bitcoin had first-mover advantage, potentially saturating overall demand for crypto assets in response to spot ETF approvals,” JPMorgan analysts led by Nikolaos Panigirtzoglou said in May, adding that ether ETFs could see net inflows of $3 billion this year. .
According to Ilan Solot, senior global market strategist at Marex Solutions, pessimism can actually lead to outperformance.
“Pervasive pessimism is a strong setup for outperformance. The same goes for the news sell strategy, many will try to outplay the BTC ETF,” Solot said in an email.
“However, I fear that many inflow predictions could be overstated by comparing them to BTC ETF numbers (like “ETH will attract 20% of BTC ETF inflows”). Predominance of delta-neutral trades [carry trades] may confuse comparisons and overestimate potential price impacts.”
8:52 UTC: Corrects Solot’s title to chief global market strategist. The previous version said that the co-head of digital assets.