The much-anticipated US exchange-traded funds (ETFs) that invest directly in ether (ETH) are expected to begin trading in mid-July.
Before its launch, the trends in the ether options market on Deribit closely resembled the sentiment in bitcoin (BTC) options leading up to the BTC ETFs six months ago. However, there is one key difference that could be crucial for traders.
According to Amberdata, Ether’s 30-day options skew was around 3% at the time of writing. This curve indicates what traders are willing to pay for an asymmetric payout in either an upward or downward direction.
The positive value indicated that there was a willingness to pay relatively more for call options, offering buyers an asymmetric upside payoff over the next four weeks. A call gives the holder the right to buy an underlying asset at a preset price within a specific time frame and represents a bullish bet. A put represents a bearish bet.
Ether call options expiring in six months also traded at a premium to put options, with skew hovering around 5%.
In other words, traders are using options to position for ether strength heading into the ETF’s debut and the next six months. Traders followed a similar strategy about two weeks before BTC ETFs began trading on Jan. 11. In early January, BTC’s 30-day and 180-day skews were around 3.5% and 5%, respectively.
The bullish positioning in the ether market is consistent with expectations that spot ether ETFs, which allow investors to gain exposure to the asset without owning it, will unlock billions of dollars worth of mainstream institutional demand. BTC ETFs have attracted net inflows of more than $14 billion to date, according to Farside Investors.
“The upcoming ETH ETF launches are likely to have a much larger impact on ETH as it brings in a new wave of investors. Since ETH supply is heavily concentrated in long-term players, ETF inflows could have an outsized impact if they are proportionally as large as the Bitcoin someone received,” analyst firm IntoTheBlock wrote in the latest edition of its weekly newsletter.
Bitcoin’s 30-day options turned negative on January 10, signaling renewed favorability for puts. This is a sign that traders are preparing for a classic sell-off following the introduction of ETFs.
BTC price fell by over 15% through January 23, reaching lows below $40,000, before rising to new all-time highs above $70,000 in March.
So, Ether traders should watch out for a possible bearish reversal in the 30-day options price in the coming days.
The only difference in how ether options are currently priced compared to bitcoin in January suggests that the ether market isn’t as euphoric as BTC was seven months ago. That may weaken the case for a sell-the-fact pullback.
BTC’s 7-day skew has shown a stronger call bias than its 30-day skew on multiple occasions prior to the ETF’s launch. This is a sign of increased optimism or expectations of an imminent price increase.
Typically, investors expect higher uncertainty or volatility in the distant future compared to the short term, which is why longer maturities yield higher value than shorter ones. This is the case in the ether market, where the 7-day skew remains below the 30-day skew, showing a relatively measured bullish bias.
Note that the broader market mood is gloomier than in late 2023 and early January. Ether has fallen from $4,000 to $3,350 since late May, unable to keep pace with bitcoin’s rally to new all-time highs in the first quarter.
That’s likely because several analysts aren’t sure whether demand for ether ETFs will match the benchmark bitcoin ETFs. “Bitcoin had the first mover advantage, potentially saturating overall crypto asset demand in response to spot ETF approvals,” analysts at JPMorgan, led by Nikolaos Panigirtzoglou, said in May, adding that ether ETFs could see $3 billion in net inflows this year.
According to Ilan Solot, senior global market strategist at Marex Solutions, the pessimism could even lead to ether outperforming.
“The pervasive pessimism is a strong basis for outperformance. The same goes for the sell the news strategy, many will try to replay the BTC ETF,” Solot said in an email.
“However, I fear that many inflow predictions are over-estimated against the BTC ETF numbers (such as “ETH will attract 20% of BTC ETF inflows”). The prevalence of delta-neutral trades [carry trades] can cloud the comparison and overestimate the potential price impact.”
08:52 UTC: Corrects Solot’s title to senior global market strategist. The previous version said co-head of digital assets.