Ether Hedging Activity Picks Up as U.S. ETF Debut Nears

As a researcher, I’ve noticed an uptick in implied volatility (IV) based on data from Deribit and Kaiko. This increase indicates heightened market anticipation for price instability over certain timeframes. Consequently, there seems to be a growing interest in options or derivatives that provide protection against price fluctuations. Specifically, investors are seeking call options to hedge against potential price rallies, while puts serve as insurance against possible price declines.

In simpler terms, the short-term contracts have shown more hedging behavior, as indicated by the higher implied volatility in options approaching their July 19 expiration date compared to those nearing their July 26 expiration. According to Kaiko’s data, the implied volatility for the July 19 expiry increased from 53% on the weekend to 62% on Monday, surpassing that of the July 26 expiry.

“According to Kaiko’s analysis in their latest newsletter on July 19, the rise in Implied Volatility (IV) for the contract suggests that traders are prepared to pay a premium to safeguard their current positions and shield against potential price swings in the immediate future. This surge in IV for short-term contracts points towards heightened uncertainty among traders.”

In a report shared with CoinDesk on Monday, crypto exchange Bybit and analytics firm BlockScholes came to a comparable finding.

According to the study’s main points, there’s growing enthusiasm among investors towards Ethereum, with heightened anticipation surrounding the upcoming debut of the first US-listed Ether Spot Exchange-Traded Funds (ETFs). This optimism is evident in Ethereum’s consistent price swings relative to Bitcoin, which have remained robust despite escalating market turbulence.

The increase in hedging actions regarding ether aligns with the extremely optimistic outlook for the upcoming spot ether ETFs. These ETFs are anticipated to debut next Tuesday and could attract approximately $5 billion in net inflows within the first six months, leading to a significant enhancement of ether’s market worth compared to bitcoin.

Traders are aware of the price fluctuations that occurred following the introduction of bitcoin ETFs on January 11, and they may be getting ready for potential volatility in ether as well due to this phenomenon.

Traders need to be aware that the current market sentiment and ethereum’s cautious optimism are much more subdued compared to bitcoin in early January. This indicates a minimal probability of a sell-off following its debut, often referred to as a “buy the rumor, sell the fact” event.