Pre-ETF Ether Options Trend Reflects BTC Pattern with Notable Difference
The options market for Ether is displaying a bullish sentiment leading up to the launch of exchange-traded funds (ETFs), similar to the trends seen in the Bitcoin market in January. However, there is one key distinction – the absence of bullish euphoria in the Ether market. Despite this, the measured bullish sentiment could result in Ether outperforming in the future.
The anticipation for the debut of US ETFs directly investing in Ether is high, with trading expected to begin in mid-July. The trends observed in the Ether options market on Deribit closely resemble the sentiment seen in Bitcoin options prior to the BTC ETFs launched six months ago. Nonetheless, there is one crucial difference that may prove pivotal for traders.
At present, the 30-day options skew for Ether stands at around 3%, indicating a willingness among traders to pay more for call options that offer an asymmetric payout in the upward direction. Similarly, calls expiring in six months are trading at a premium relative to puts, with the skew hovering around 5%. This suggests that traders are utilizing options to position themselves for Ether strength leading up to the ETF debut and over the next six months. This strategy is reminiscent of the approach taken about two weeks prior to the BTC ETFs trading on January 11. During that time, Bitcoin’s 30-day and 180-day skews were approximately 3.5% and 5%, respectively.
The bullish positioning in the Ether market aligns with expectations that spot Ether ETFs will unlock significant institutional demand, potentially worth billions of dollars. Bitcoin ETFs, for instance, have attracted over $14 billion in net inflows to date. As analytics firm IntoTheBlock noted in its recent newsletter, the upcoming ETH ETF launches are anticipated to have a more substantial impact on Ether due to attracting a new wave of investors. Additionally, with Ether’s supply concentrated among long-term holders, ETF inflows could have a significant effect if they are proportionally as large as those witnessed for Bitcoin.
However, there is a cautionary note based on historical patterns. Prior to BTC ETFs’ debut, Bitcoin’s 30-day options skew turned bearish on January 10, indicating a shift towards a preference for puts as traders prepared for a sell-the-fact pullback after the launch. This prediction did materialize, with Bitcoin’s price dropping by over 15% by January 23, though it eventually rallied to new record highs above $70,000 in March. Similarly, Ether traders should be alert for a potential bearish flip in the 30-day options skew in the coming days.
One notable difference between Ether and Bitcoin lies in how their options are currently priced compared to the situation in January. This suggests that the Ether market is not as euphoric as Bitcoin was seven months ago, weakening the case for a sell-the-fact pullback. BTC’s seven-day skew showed a stronger bias for calls compared to the 30-day skew multiple times before the ETF debut, indicating heightened optimism or expectations of imminent price increases. In contrast, the Ether market exhibits a relatively measured bullish bias, with the 7-day skew remaining below the 30-day skew, as investors usually expect more uncertainty or volatility in the distant future compared to the near term.
It is worth noting that the broader market sentiment is more subdued than in late 2023 and early January. Ether has seen a decline from $4,000 to $3,350 since late May and has struggled to keep up with Bitcoin’s rally to new record highs in the first quarter of this year. Some analysts remain uncertain whether the demand for Ether ETFs will match that seen for Bitcoin ETFs. JPMorgan analysts, led by Nikolaos Panigirtzoglou, pointed out in May that Bitcoin had the advantage of being the first mover, potentially saturating the overall demand for crypto assets upon the approval of spot ETFs. They added that Ether ETFs could see $3 billion in net inflows this year.
Ilan Solot, co-head of digital assets at Marex Solutions, believes that the prevailing pessimism might actually lead to Ether outperforming. In an email, Solot expressed concerns that predictions of inflows could be over-benchmarked by comparing them to Bitcoin ETF numbers. Additionally, he suggests that the prevalence of delta-neutral trades (carry trades) may complicate the comparison and overestimate potential price impacts.