Investment

Ethereum is facing the largest option expiration to date, as bears appear to dominate


Ether (ETH) faces him so far the largest option validity on June 25 as nearly $ 1.5 billion of imaginary open interest (OI) of $ 3.3 billion in ETH options expires. The expiration of June is the responsibility of more than 638,000 ETH option contracts, which represents 45% of the total open interest in these options.

Although this is the largest option expiration in the history of a derivative product, open interest in ETH options reached an OI high of nearly $ 5.5 billion on May 20, shortly after ETH reached its all-time high of $ 4,362 on May 12.

The huge expiration in the middle of an ongoing market indicates increased interest in the ETH derivatives market despite token trading in the $ 2,270 range, which is 47.61% less than its all-time high since mid-May. Luuk Strijers, Commercial Director of Deribit Crypto Derivatives Exchange, told Cointelegraph:

“The put put ratio for the June expiration period is 0.79, indicating that there are more outstanding calls compared to puts (64,000 more).” This is indeed an indicator of bullish sentiment, however, most of this OI is kept in contracts quite far from the current ETH price, indicating a low probability of money expiration. “

Although Robbie Liu, an analyst at Market Insights OKEx – Cryptocurrency Exchange, pointed out what the price gap suggests: “Expiration is still dominated by bears because a significant number of call options are far from the current price. For example, the largest OI is concentrated in strikes of $ 3,200 per call option. “

Purchase Option Agreements allow holders to purchase Ether at a predetermined price on the expiration date, while Option Option Agreements allow them to sell Ether on similar terms. Under normal circumstances, call options are used to supplement bullish strategies, while put options are used to hedge against negative price movements in the underlying asset.

The maximum pain cost for this record expiration is $ 1,920. This price is the point where the largest number of options is at a loss, it is highly unlikely that the price of ETH will fall by more than 10% from the current trading range. Although, as witnessed on 19 May, day, more commonly known today as Black Wednesday in a crypto version, seasoned investors would never say never.

Strijers further explained the impact of growing open interest in terms of the number of contracts: “Given the growing size of our open interest fund, we will see that our expiries are becoming increasingly important liquidity and risk transfer events that form a virtuous circle. “

He also added that although the fictitious open interest of ETH options decreased in terms of the value of the US dollar due to the decline in the spot price, the open interest measured in contracts was hardly affected by the decline in the price. This indicates a continuing interest in the ether derivatives market despite the price drop.

CME data show growing institutional demand

The Chicago Mercantile Exchange, the world’s largest derivatives exchange, launched its futures product on Ether on February 8 earlier this year. Highly awaited launch on the first day of trading they witnessed a volume of more than $ 30 million on the stock exchange.

According to a message from OKEx, the launch of CME Ether Futures comes as a “nod to approval” from the most widely used derivatives exchange. Richard Delany, chief analyst at OKEx Insights, added: “This seems to have really attracted significant institutional interest in cryptocurrency number two.”

However, Delany also pointed out that market conditions and the context surrounding marketing are completely different from those in the EU. launch of CME bitcoin futures in December 2017. Launch of CME bitcoin (BTC) futures came during the expanded bear market, as interest in digital currencies declined in general, and the product provided flagship cryptocurrency exposure to institutions that did not have access to channels available to retail investors. Delany added:

“More than three years after the launch of CME BTC futures, knowledge of these cryptographic tools has expanded, leading to massive growth in CME BTC futures and their newer ETH counterparts.” Despite the recent market correction, interest in cryptocurrency remains much greater than at the beginning of 2018. “

According to data provided by Cointelegraph CME, its Ether futures contract had an average daily volume (ADV) of 5,895 contracts in May and an average open interest rate of 3,082 in May, equivalent to a nominal value of USD 6.86 million.

The record trading day for the CME Ether futures contract was May 19, representing a total of 11,980 contracts, or options worth $ 26.5 million. An open interest record for 3,977 contracts took place on June 1, equivalent to $ 8.82 million at the current market price of the token.

Holders of large open interest rates (LOIH) in this derivative contract also reached a maximum of 45 on 25 May, with the average for May being 37 LOIH. Each LOIH has at least 25 futures contracts, equivalent to at least 1,250 ETH or $ 2.7 million in face value at least at the time of writing. However, Strijers explained why this growth was limited, “CME realized around $ 400 million in the open interest of ETH. Growth in this amount is somewhat limited due to insufficient current revenue, which has been a major driver of CME volumes. “

However, a CME spokesman also mentioned that he does not currently plan to include other cryptocurrency products in his product suite, such as Ether options, which include bitcoin and micro bitcoin futures, bitcoin options and ether futures.

Correlation between BTC and ETH

The correlation of Ether with bitcoins fell to a level below 0.6 in early May due to the completely independent price movements that Ether made during this period. The monthly correlation ranged between 0.7 and 0.8 in April and fell to 0.5–0.6 at the beginning of May, but rebounded drastically to 0.9 at the beginning of June and has remained high since then.

30-day BTC / ETH correlation

However, in a recent BTC rally for $ 41,000, ETH showed relatively limited price movements and was constantly trading in the range of $ 2,400-2,500 during the rally, due to the news that Salvador will become the first country to adopt bitcoins as legal tender. Liu pointed out: “In the recent past, the ETH response has not gained as much dynamism as BTC, with the price of ETH / BTC falling by 20% from its peak on June 7.”

Related: An asset for all classes: What you can expect from bitcoin as legal tender

Since the positive price trend for BTC before May 16, bitcoins have been steadily falling to around $ 35,500, bringing ETH to trading in the $ 2,200 range, down 6% in 6 hours. Liu mentioned why ETH may take longer to bounce back from the ongoing price drop than BTC:

“Looking back to the beginning of 2018, ETH also set its historically high price a month after BTC’s completion.” And then ETH / BTC saw a two-month decline before the trend reversed. It takes longer for the market to reverse the momentum of ETH. “

However, for the Ethereum network, June brought improvements in one important aspect: gas charges. Network transaction fees for bitcoins and ethereum On June 1, it reached a six-month low.

The change took place in June, almost two months after the Berlin hard fork took place on 13 April, the first step the network is taking to address the very worrying gas charging problem that has plagued the network for a long time. Liu further considered:

“The constant high gas charges in March and April were clearly the main reason for the transfer of funds to EVMs and side chains, which led to a sharp increase in the total value locked up in the BSC.” Also in mid-May, the sales caused Ethereum fuel charges to rise above 1,000 gwei to start DeFi participants moving to Polygon. “

Although lower gas charges may be purely the result of smaller transactions and congestion in the network, rather than correcting the scalability of the network, it still brings much-needed relief to both investors and decentralized users of finance.

As price momentum in the first two cryptocurrencies continues to decline, it will be interesting to see the changes that these $ 1.5 billion bear expirations will bring to Ethereum and the price of its token.



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