First Mover Americas: Ether Options Shed Bearish Skew for First Time in 2 Months, ETH/BTC Ratio Eyes Big Move

The latest moves in crypto markets in context for March 23, 2022.

AccessTimeIconMar 23, 2022 at 1:02 p.m. UTC
Updated May 11, 2023 at 5:56 p.m. UTC
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Good morning, and welcome to First Mover, our daily newsletter putting the latest moves in crypto markets in context. Sign up here to get it in your inbox each weekday morning.

Here’s what’s happening this morning:

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  • Bitcoin Ecosystem Developments in 2023 as BTC Hits Fresh 2023 High
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    Bitcoin Ecosystem Developments in 2023 as BTC Hits Fresh 2023 High
    • Market Moves: Bitcoin, ether drop as investors reassess bearish implications of lingering macro uncertainty.
    • Featured stories: Investors in the cryptocurrency options markets are showing less demand for protection against prolonged price declines in ether (ETH), the native cryptocurrency of the Ethereum blockchain. Trading indicators suggest there might a big move coming in the ratio between ether’s price and bitcoin’s, known as ETH/BTC.

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    • Tim McCourt, senior managing director, CME Group
    • Daniel Lacalle, chief economist, Tressis
    • Damanick Dantes, markets reporter, CoinDesk

    Market Moves

    By Omkar Godbole

    Bitcoin slipped to $42,000, pausing the post-Federal Reserve announcement recovery rally as the U.S. stock futures pointed to a weak open. Ether fell under $3,000, with chart traders waiting for a bullish UTC close above critical resistance on technical charts.

    Market participants continued to assess the implications of the recent hawkish moves by the Federal Reserve ahead of U.S. President Joe Biden's Europe trip to discuss additional sanctions on Russia.

    "My take here is that fundamentals are very supportive, but fear of border risk appetite contagion is holding back the price action," Ilan Solot, a partner at the Tagus Capital Multi-Strategy Fund, said in an email.

    "The recent bounce in global equities – concurrent with spiking inflation, hawkish Fed and war – has left many investors unconvinced the recovery is sustainable," Solot added.

    The cryptocurrency's 90-day correlation to the S&P 500, Wall Street's benchmark index, has hit a 17-month high of 0.495.

    In other words, the cryptocurrency's near-term prospects appear tied to U.S. stocks and a continued rally in the S&P 500 could see bitcoin gain more ground. On Tuesday, the S&P 500 closed above its 200-day moving average – the first so-called bullish close in a month.

    Latest Headlines

    Ether Options Shed Bearish Skew, ETH/BTC Eyes Big Move

    By Omkar Godbole

    The demand to protect against a prolonged weakness in ether appears to have waned, according to data provided by the crypto derivatives analytics firm Skew.

    The six-month put-call skew, which tells how much lower strike puts expiring in six months are being bid up versus higher strike calls, has declined from 5% to 0% this week, shedding bias for puts or bearish bets offering downside protection for the first time since Jan. 25.

    The long-term gauge has flipped from bearish to neutral a week after Ethereum developers successfully tested the long-awaited merge of the programmable blockchain's proof-of-work and proof-of-stake chains, dubbed Eth 2.0.

    The upgrade will allow users to hold coins in a cryptocurrency wallet to support network operations in return for newly minted coins and is likely to impact ether's price positively, analysts told CoinDesk.

    Ether: Six-month put-call skew. (Skew)
    Ether: Six-month put-call skew. (Skew)

    The turnaround validates the bullish breakout on ether's daily chart confirmed on Monday.

    While the one-week, one- and three-month skews have retreated from February highs, they continue to show a preference for puts, meaning fears of a short-term pullback persist. Given the lingering geopolitical uncertainty and U.S. recession fears, that's hardly surprising.

    The dollar value dedicated to ether options contracts has topped the $6 billion mark for the first time in more than a month. On Friday, ether options worth $2.28 billion are set to expire.

    Ether-bitcoin volatility spread suggests a big move in ETH/BTC

    The spread between the one-month implied volatility (IV) for ether (ETH) and bitcoin (BTC), a measure of expected relative price turbulence between the two, has turned negative for the first time since March 2021, per data provider Skew.

    In other words, ether's implied volatility is trading at a discount to bitcoin for the first time in a year. Historically, the negative ether-bitcoin IV spread has marked the beginning of big rallies in the ether-bitcoin (ETH/BTC) ratio.

    For instance, ETH/BTC rallied over 180% to 0.082 in the weeks following the implied volatility spread's negative turn in mid-March 2021. The ratio doubled to 0.040 in less than two months after the implied volatility spread dipped below zero in mid-May 2020.

    Outsized gains in most alternative cryptocurrencies usually accompany a rally in the ether-bitcoin ratio. "The fundamentals for ETH are aligned for a move upwards, however a rally in ETH would also likely lead to an alt-wide rally across the board," Matthew Dibb, COO and co-founder of Stack Funds, told CoinDesk in a WhatsApp chat.

    Ether-bitcoin one-month implied volatility spread. (Skew)
    Ether-bitcoin one-month implied volatility spread. (Skew)

    ETH/BTC was trading near 0.07 at press time, according to charting platform TradingView.

    "We are seeing some strength in ETH, particularly relative to other assets in the ecosystem. ETH/BTC is now trading at around 0.07 again and will soon me meeting some short-term technical resistance at 0.072," Dibb added.

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    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Omkar Godbole

    Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.


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