ETFs
Pre-ETF Ether Options Trend Mirrors BTC, With One Difference
The highly anticipated US exchange-traded funds (ETFs) that invest directly in ether (ETH) are expected to begin trading in mid-July.
Ahead of Debut, Ether Options Market Trends on Deribit Closely Mirror Bitcoin Sentiment (BTC) options in the outlook for BTC ETFs six months ago, except for one key difference that could be crucial for traders.
At press time, the 30-day ether options tilt, which measures what traders are willing to pay for an asymmetric payout to the upside or downside, was holding around 3%, according to Amberdata.
The positive value indicates a willingness to pay relatively more for call options, providing buyers with an asymmetric payoff to the upside over the next four weeks. A call gives the holder the right to buy an underlying asset at a predefined price within a specific time frame and represents a bullish bet. A put represents a bearish bet.
Ether call options expiring in six months are also trading at a premium to put options, with a distortion hovering around 5%.
In other words, traders are using options to position themselves on the strength of ether ahead of the ETF launch and over the next six months. Traders followed a similar strategy about two weeks before the BTC ETF began trading on January 11. At the beginning of January, BTC’s 30-day and 180-day spreads were about 3.5% and 5%, respectively.
The bullish positioning of 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 in mainstream institutional demand. BTC ETFs have attracted net inflows of more than $14 billion to date, according to Farside Investors.
“Upcoming ETH ETF launches are likely to have a much larger impact on ETH as they attract a new wave of investors. With ETH supply heavily concentrated among long-term players, ETF inflows could have an outsized effect if they are proportionally as large as those received by Bitcoin,” analytics firm IntoTheBlock said in the latest edition of its weekly newsletter.
Bitcoin’s 30-day options skew turned bearish on January 10, signaling a renewed bias toward put options, a sign of a Traders are preparing for a classic “sell the facts” type of retreat after the ETF debut.
BTC price fell more than 15% on January 23, testing lows below $40,000 before rallying to new record highs above $70,000 in March.
Ether traders may therefore want to watch for a possible bearish reversal in the 30-day options trend in the coming days.
The only difference in how ether options are currently priced versus bitcoin in January suggests that the ether market is not as euphoric as BTC was seven months ago. This perhaps weakens the argument for a sell-off.
BTC’s seven-day tilt has shown a stronger bias toward calls than the 30-day tilt on several occasions ahead of the ETF’s debut, a sign of increased optimism or expectations of an upcoming price increase.
Typically, investors expect greater uncertainty or volatility in the distant future compared to the near term, which ensures that longer duration spreads yield higher value than shorter spreads. This is the case in the Ether market, where the 7-day spread remains lower than the 30-day spread, presenting a relatively measured bullish bias.
Note that the overall market mood is darker than in late 2023 and early January. Ether has fallen from $4,000 to $3,350 since late May, failing to keep pace with Bitcoin’s rally to new record highs in the first quarter.
This is likely because many analysts are unsure whether 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,” analysts at JPMorganled 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, pessimism could actually lead to ether outperformance.
“The pervasive pessimism is a driver of outperformance. Same goes for the news sell strategy, many will try to replay from the BTC ETF,” Solot said in an email.
“However, I fear that many inflow predictions may be overstated when compared to BTC ETF numbers (such as “ETH will attract 20% of BTC ETF inflows”). The prevalence of delta-neutral transactions [carry trades] “This could confuse the comparison and overestimate the potential price impacts.”
8:52 UTC: Solot’s title is now senior global markets strategist. The previous version listed co-head of digital assets.