Ether Put Demand Signals Weakness After $4K Price Breakout

By locking in the right to sell ETH at a specified price, options traders are preparing for short-term weakness after the cryptocurrency hit a two-year high.

AccessTimeIconMar 12, 2024 at 9:25 a.m. UTC
Updated Mar 12, 2024 at 12:20 p.m. UTC
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  • Ether puts expiring in 30 and 60 days traded at a premium to calls a day after the cryptocurrency's price broke above $4,000, crypto options data from Deribit show.
  • The relative richness of puts likely stems from concerns that the U.S. SEC may not approve the highly anticipated ether spot ETF by May.

Ether (ETH) options traders are bracing for near-term price weakness a day after the cryptocurrency convincingly rose past $4,000 to the highest since late 2021.

Ether's one-month call-put skew, an options market measure of sentiment, has turned negative, hinting at the relative richness of puts, or options used to protect against bearish price trends. The 60-day gauge has also flipped in favor of put options, while the 90-day and 180-day metrics remain positive, according to crypto options flow on Deribit tracked by Amberdata. Deribit is the world's leading cryptocurrency options exchange, accounting for over 85% of the global activity.

A put option gives the purchaser the right, but not the obligation, to sell the underlying asset at a predetermined price at a later date. A put buyer is implicitly bearish on the market, often looking to protect spot market holdings from potential price slides. A call option offers protection against bullish moves.

Investor interest in near-term ether puts likely stems from the dwindling probability of the U.S. Securities and Exchange Commission (SEC) approving a spot ether exchange-traded fund (ETF) by May, QCP Capital explained in its latest market insights post.

The 75% year-to-date gain in ether, the token of the Ethereum blockchain, has been catalyzed mainly by hopes the SEC will greenlight a spot ETF, opening the doors for traditional financial institutions to take exposure to the second-largest cryptocurrency without owning it directly. The SEC approved nearly a dozen spot bitcoin ETFs in January. Since then, billions of dollars have been poured into these ETFs, sending bitcoin to record highs above $70,000.

On Monday, ETF analysts at Bloomberg reduced their estimates for a spot ether ETF approval in May to 30% from 70%. The probability has dropped from over 70% in January to 31% on decentralized betting platform Polymarket. Earlier this year, investment banking giant JPMorgan said that the probability of the SEC approving an ETH ETF by May is no more than 50%.

Last week, the regulator delayed its decision on BlackRock and Fidelity's applications for spot ETH ETFs. Still, some observers are hopeful that BlackRock's ETF will win approval on May 23, when the final decision on VanEck's ETH ETF application is due.

The 30- and 60-day skews hover below zero, indicating a bias for puts. (Amberdata)
The 30- and 60-day skews hover below zero, indicating a bias for puts. (Amberdata) (Amberdata)

Edited by Sheldon Reback.


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Omkar Godbole

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

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