The long-awaited arrival of U.S.-based Ether (ETH) spot exchange-traded funds (ETFs) is stirring anticipation – and caution – in the cryptocurrency market. Investors are increasingly turning to the options market to hedge their bets and shield their positions from potential price swings surrounding the ETF launch.
Implied Volatility on the Rise
Market data from Deribit and Kaiko reveals a rise in implied volatility (IV) across various timeframes for Ether options. Implied volatility reflects market expectations for future price fluctuations, and its increase suggests a growing demand for options contracts. These contracts offer a way for investors to protect themselves against price movements, either upwards (calls) or downwards (puts).
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The hedging activity seems particularly focused on short-term contracts. This is evident in the recent rise of IV for options expiring on July 19th, compared to those expiring later in July. According to Kaiko analysts, “the increase in IV on the July 19 contract suggests traders are willing to pay more to hedge existing positions and protect against sharp price moves in the short run.” This points towards a level of uncertainty among investors regarding the immediate impact of the ETF launch.
Ether’s Volatility Premium Over Bitcoin
Another trend taking shape is the elevated implied volatility for Ether options compared to Bitcoin options. Data from Amberdata shows this spread has consistently hovered around 10% since late May, significantly higher than the 5% seen in the first quarter. This suggests that investors are more optimistic about Ether, potentially due to the upcoming ETF launch.
Bullish Bets and Measured Optimism
The surge in hedging activity aligns with the overall positive sentiment surrounding Ether spot ETFs. Experts predict these ETFs to attract significant investment, potentially boosting Ether’s market value relative to Bitcoin. Gemini estimates net inflows of $5 billion in the first six months alone.
Also Read: Ethereum To Moon? Kaiko Predicts ETH Outperformance vs. Bitcoin After Spot ETF Launch
However, analysts caution against drawing parallels with the launch of Bitcoin ETFs in January 2022. Back then, the market witnessed a “sell-the-fact” phenomenon where prices dropped after the initial excitement. While some volatility can be expected, the current market mood surrounding Ether is considered more measured compared to Bitcoin’s earlier debut. This suggests a lower chance of a significant post-launch price correction for Ether.
The stage is set for a pivotal moment in the crypto space. As Ether spot ETFs prepare to enter the scene, how the market reacts and whether investors’ hedging strategies prove effective remain to be seen.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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