A highly anticipated U.S. exchange-traded fund (ETF) that invests directly in Ethereum (ETH) is set to begin trading as early as mid-July.
Ahead of its debut, Deribit Ether options market activity is mirroring Bitcoin (BTC) options sentiment ahead of the BTC ETF six months ago, with one key difference that could be crucial for traders.
At press time, skewness in Ethereum’s 30-day options, which measures how much traders are willing to pay for asymmetric payouts on the upside or downside, was hovering around 3%, according to Amber Data.
A positive value indicates a willingness to pay a relatively high amount for a call option, which offers the buyer upward asymmetrical payouts over the next four weeks. Calls give the holder the right to buy the underlying asset at a pre-determined price within a specific time period and represent a bullish bet. Puts represent a bearish bet.
Ethereum call options expiring within six months are also trading at a premium to put options, with the difference hovering around 5%.
In other words, traders are using options to position for Ethereum strength heading into the ETF’s debut and over the next six months. Traders pursued a similar strategy about two weeks before the BTC ETF 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 Ethereum market coincides with expectations that spot Ethereum ETFs, which allow investors to gain exposure without owning the asset, will unlock billions of dollars worth of mainstream institutional demand. A BTC ETF has attracted more than $14 billion in net inflows so far, according to Far Side Investors.
“The upcoming ETH ETF launch is likely to have a much bigger impact on ETH as it brings in a new wave of investors. Since ETH supply is concentrated among long-term investors, inflows into the ETF could have an outsized impact if they are proportionally as large as Bitcoin inflows,” analytics firm IntoTheBlock said in the latest edition of its weekly newsletter.
The bias in Bitcoin’s 30-day options turned bearish on Jan. 10, showing a renewed bias towards put options as a sign that traders are bracing for the typical selling pressure following the ETF’s debut.
The price of BTC had fallen by over 15% by January 23, testing lows below $40,000 before rising to new highs of over $70,000 in March.
Therefore, Ethereum traders may want to be on the lookout for a possible bearish reversal in the 30-day options skew over the next few days.
The fact that Ether options pricing is different now to where Bitcoin was in January suggests that the Ether market is not as enthusiastic as BTC was seven months ago, which may weaken the case for a pullback driven by selling pressure.
Ahead of the ETF’s debut, BTC’s 7-day skew has shown a stronger bias towards calls than its 30-day skew on several occasions, signaling growing optimism and expectations of a price rally in the near future.
Typically, investors expect more uncertainty and volatility in the distant future than in the near term, and longer-term skews are sure to return higher than shorter-term skews. This is certainly the case for the Ethereum market, where 7-day skews are below 30-day skews, indicating a relatively modest bullish bias.
Note that the overall market mood is gloomier than it was in late 2023 or even early January. Ether has fallen from $4,000 to $3,350 since late May, failing to match Bitcoin’s rise to an all-time high in the first quarter.
That’s likely because several analysts are unsure whether demand for an Ethereum ETF will match the benchmark set by a Bitcoin ETF. “Bitcoin had first-mover advantage, so approval of a spot ETF could saturate overall crypto demand,” JPMorgan analysts led by Nikolaos Panigirtzoglou said in May, adding that the Ethereum ETF is expected to see $3 billion in net inflows this year.
According to Ilan Solot, co-head of digital assets at Marex Solutions, pessimism could actually lead to Ethereum outperformance.
“Pessimism everywhere is a powerful recipe for outperformance, as will sell-the-news strategies, with many attempting to replay out of the BTC ETF,” Solott said in an email.
“However, we are concerned that many inflow forecasts may be overly benchmarked by comparing them to BTC ETF figures (e.g., “ETH will attract 20% of BTC ETF inflows”). The prevalence of delta-neutral trading [carry trades] This can make comparisons confusing and lead to overestimating the potential impact on prices.”
