Ethereum is facing the biggest options expiration ever as a bear

Ether (ETH) faces the biggest options expiry ever on June 25 as nearly $ 1.5 billion of $ 3.3 billion in nominal open interest (OI) in ETH options expire. With a term in June, more than 638,000 ETH options contracts are being considered, which corresponds to 45% of all open positions in these options.

Although this is the largest option expiration date in the history of the derivative, open interest for ETH options OI hit an all-time high of nearly $ 5.5 billion on May 20. Shortly after ETH hit an all-time high of $ 4,362 on May 12.

The massive run-out amid ongoing market-wide traction is a sign of increased interest in the ETH derivatives market despite token trading in the $ 2,270 range, less than 47.61% from an all-time high in mid-May. Luuk Strijers, Chief Trading Officer of Crypto – Deribit derivatives exchange, told Cointelegraph:

“The put-through rate for the end of June futures was 0.79, which indicates that more calls were made than put through (an additional 64,000). This is indeed a sign of bullish sentiment, however most of this open interest is held in contracts that are far from the current ETH price, suggesting that the likelihood that the coins will expire is very small . “

However, Robbie Liu, an analyst on the Market Insights team at OKEx – a crypto exchange – pointed out that this price gap shows, “The decay is still dominated by the bears as a significant number of call options are still far from being is available. Price. For example, the largest open interest is in strikes on the $ 3,200 call option mark. “

A call option allows the holder to buy ether at a set price on the expiration date, while a put option allows the holder to sell ether under the same conditions. Under normal circumstances, calls are used to complement bullish strategies, while put options are used to hedge against negative price movements in the underlying asset.

The maximum pain price for this record expiration is $ 1,920. This price level is where most options lose. It is very likely that the ETH price will drop more than 10% from its current trading range. Although, as seen on May 19, a day commonly known as Black Wednesday in cryptocurrencies today, seasoned investors would never say never.

Strijers goes on to explain the impact of growing open interest on the number of contracts: “As the open interest pool grows, we see expiration options becoming more important in terms of liquidity and risk transfer events creating a positive cycle. “

He added that while the nominal open interest of ETH options has decreased due to the decrease in spot prices in US dollar value, the measured open interest in the contracts remains largely unaffected by the decrease. Despite the drop in prices, this shows continued interest in the ether derivatives market.

CME data show growing institutional demand

The Chicago Mercantile Exchange, the world’s largest futures exchange, launched its Ether Futures product on February 8 of this year. The eagerly awaited start recorded a volume of over 30 million US dollars on the first day of trading on the exchange.

According to an OKEx report, the introduction of CME Ether Futures is a “nod of approval” from the most popular exchange for derivatives products. Richard Delany, a senior analyst on the OKEx Insights team, added, “This seems to have generated significant institutional interest in the number two cryptocurrency.”

However, Delany also pointed out that the market conditions and context surrounding the launch are very different compared to the CME Bitcoin Futures launch in December 2017. CME’s Bitcoin (BTC) futures launch arrives in a prolonged bear market as interest in the digital currency has waned across the board and the product is providing prime crypto exposure to institutions that do not have access to channels available to retail investors . Delany added:

“In the more than three years since the introduction of CME-BTC futures, familiarity with such crypto trading tools has become widespread, resulting in massive growth in both the BTC futures CME and their newer ETH counterparts . Despite the recent market correction, overall crypto interest is still much greater than it was in early 2018. “

According to data from CME to Cointelegraph, its Ether futures had an average daily volume (ADV) of 5,895 contracts in May and an average open interest in May of 3,082, or $ 6.86 million in face value.

The record trading day for Ether CME futures was May 19 with a total of 11,980 contracts or $ 26.5 million in options. On June 1, a record open interest of 3,977 contracts was passed, which corresponds to $ 8.82 million at the current market price of the token.

Large open interest (LOIH) holders in this derivative also hit a high of 45 on May 25, with the average for May being 37 LOIH. Each LOIH holds at least 25 futures contracts, which is at least 1,250 ETH or $ 2.7 million face value at the time of going to press. However, Strijers explains why this growth was limited: “CME has raised around 400 million US dollars in ETH Open Interest. The growth of this volume is somewhat constrained by the current lack of productivity, which is a major driver of the CME volumes. “

However, a CME spokesperson also mentioned that they currently have no plans to add additional crypto products such as ether options to their product suite, which includes bitcoin and micro-futures contracts, bitcoin, bitcoin options, and ether futures.

Correlation between BTC and ETH

The correlation of Ether with Bitcoin fell to a level below 0.6 in early May due to the completely independent price movements that Ether made during that time. The one-month correlation ranged from 0.7-0.8 in April before falling to 0.5-0.6 in early May, but rebounded sharply to 0.9 in early June and has remained high since then.

However, during the recent BTC rally to $ 41,000, ETH showed rather limited price volatility and continuously traded in the $ 2,400-2,500 range throughout the rally, fueled by El news. Salvador was the first country to accept Bitcoin as legal tender. “In the recent past, the recovery of ETH has not gained as much momentum as that of BTC, as ETH / BTC prices have fallen 20% since the June 7 high,” Liu said.

Connected: A win for all classes: What you can expect from Bitcoin as legal tender

Since the positive price trend for BTC prior to May 16, Bitcoin has steadily fallen to around $ 35,500, which dragged ETH to trade in the $ 2,200 range, which is a 6% decline in 24 hours. Liu mentioned why ETH may take longer to recover from the ongoing decline than BTC:

“If we look back at the beginning of 2018, ETH has also reached its all-time high one month after the peak of BTC. And then ETH / BTC saw a two month decline before the trend reversed. It will take longer for the market to reverse the momentum at ETH. “

For the Ethereum network, however, June brought improvements in one important aspect: gas fees. Network transaction fees for Bitcoin and Ethereum hit a six-month low on June 1.

That change came in June, almost two months after the Berlin hard fork on April 13th. This is the first step the network is taking to address the very worrying problem of gas charges that has long been causing the network. Liu further emphasized:

“Consistently high gas charges in March and April were clearly the main reason for switching to EVM and sidechains, which resulted in the total value of BSC skyrocketing. During the mid-May sell-off, Ethereum gas fees, which skyrocketed over 1,000 gwei, prompted DeFi attendees to switch to Polygon. “

While lower gas charges are more the result of fewer transactions and network congestion than a scalability solution for the network, they still offer homeowners, investors and users of decentralized financing the much-needed relief.

As price momentum in the two top cryptocurrencies continues to subside, it will be interesting to see what changes this bear-dominated $ 1.5 billion shelf life will bring to the Ethereum network and the price of its token.