Ethereum is facing the biggest options expiration ever as bears appear to dominate


Ether (ETH) faces its biggest option expiration of all time on June 25, as nearly $ 1.5 billion of the $ 3.3 billion notional open interest (OI) in ETH options expires. The June expiry includes over 638,000 ETH options contracts, which make up 45% of the total open positions in these options.

Despite being the largest option expiry in the history of the derivative product, open interest for ETH options OI hit its all-time high of nearly $ 5.5 billion on May 20, shortly after ETH hit its all-time high of US $ 4,362 on May 12 -Dollars had reached.

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The tremendous expiration amid the ongoing market-wide pull indicates increased interest in the ETH derivatives market despite token trading in the $ 2,270 range, 47.61% lower than its all-time high of mid-May. Luuk Strijers, chief commercial officer of the crypto derivatives exchange Deribit, told Cointelegraph:

“The put to call ratio for the June expiration date is 0.79, which indicates there are more calls outstanding compared to puts (64,000 more). This is indeed an indication of bullish sentiment, however the majority of this OI is held in contracts that are far from the current ETH price, which suggests a small chance of the money running out. “

Although Robbie Liu, an analyst with the Market Insights team at OKEx – a cryptocurrency exchange – pointed out what this price gap indicates, “The expiry is still bears dominated as a significant number of call options are far from the current price . For example, the largest OI focuses on strikes at the $ 3,200 mark for call options. “

Call options contracts allow holders to buy ether at a set price on the expiration date, while put options contracts allow them to sell ether under similar conditions. As a rule, 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 price for this record expiration is $ 1,920. Since this price is the point at which most options lose, it is very unlikely that the price of ETH will drop more than 10% from its current trading range. Although, as testified on May 19th, a day better known in crypto-verse today as Black Wednesday, seasoned investors would never say never.

Strijers went on to explain the impact of growing open interest in terms of the number of contracts: “With the growing size of our open interest pool, we are seeing our option deadlines becoming increasingly important. Liquidity and risk transfer events form a positive cycle. “

He added that although the notional open interest of ETH options in relation to the US dollar value has decreased due to the drop in the spot price, the open interest measured in contracts has been barely affected by the drop in prices. This indicates the continued interest in the ether derivatives market despite the price decline.

CME data shows increasing institutional demand

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

According to a report by OKEx, 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, said, “This actually appears to have sparked 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 when CME launched its Bitcoin futures in December 2017. The CME’s launch of Bitcoin (BTC) futures came during an extended bear market when interest in digital currencies had waned across the board, and the product offered an exposure to the flagship market for institutions lacking access to retail investor channels. Cryptocurrency. Delany added:

“In the more than three years since CME BTC futures were introduced, familiarity with such crypto trading instruments has increased, resulting in massive growth in both CME BTC futures and their newer ETH counterparts. Despite the recent market correction, interest in cryptocurrencies in general remains much greater than it was in early 2018. “

According to data provided by the CME to Cointelegraph, its Ether Futures contract had an Average Daily Volume (ADV) of 5,895 contracts in May, and the average open interest in May is 3,082, which is a face value of 6.86 million Equivalent to US dollars.

The record trading day for the CME Ether Futures contract was May 19, which totaled 11,980 contracts or options valued at $ 26.5 million. The record for open interest of 3,977 contracts was hit on June 1, which equates to $ 8.82 million at the current market price of the token.

The Large Open Interest Holders (LOIH) in this derivative contract also hit a high of 45 on May 25, with the average for May being 37 LOIHs. Each LOIH holds a minimum of 25 futures contracts that are equal to at least 1,250 ETH or $ 2.7 million in face value at the time of writing. However, Strijers explained why this growth was limited: “CME has raised around $ 400 million in ETH Open Interest. The growth of this amount is somewhat limited due to the lack of ongoing returns that have been a big driver of CME volume. “

However, the CME spokesperson also mentioned that there are currently no plans to add additional cryptocurrency products such as ether options to their product suite, which includes bitcoin and micro-bitcoin futures, bitcoin options, and ether futures.

Correlation between BTC and ETH

The correlation of Ether with Bitcoin dropped to below 0.6 in early May due to completely independent price movements that Ether made during this period. The one-month correlation was between 0.7 and 0.8 in April, before falling to 0.5-0.6 in early May, but recovering sharply to 0.9 in early June and has remained high since then.

BTC / ETH 30-day correlation

However, in the recent BTC rally to $ 41,000, ETH showed rather limited price movement, trading in the $ 2,400-2,500 range consistently throughout the rally, fueled by news that El Salvador will be the first country to that accepts Bitcoin as legal tender. Liu pointed out, “In the recent past, ETH’s rebound has not gained as much momentum as BTC as the price of ETH / BTC has fallen 20% from its June 7th high.”

Connected: An enrichment 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, down 6% in 24 hours . Liu mentioned why ETH might take longer to recover from the ongoing price drop than BTC:

“If we look back at the beginning of 2018, ETH also set its all-time high price one month after the BTC peaked. 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 an improvement in one important aspect: gas fees. Network transaction fees for both Bitcoin and Ethereum hit a six-month low on June 1.

This change came in June, almost two months after the Berlin hard fork on April 13th, which marked the network’s first step in resolving the long-worrying gas fee issue. Liu continued:

“The consistently high gas charges in March and April were clearly a major reason for sending funds to EVMs and sidechains, adding to the overall value of BSC. In mid-May, the Ethereum gas fees, which rose over 1,000 gwei, led DeFi participants to switch to Polygon.

Even if the lower gas charges may be due to lower transactions and congestion in the network rather than a scalability fixation of the network, it brings much-needed relief to investors and decentralized financial users alike.

As price momentum continues to decline in the top two cryptocurrencies, it will be interesting to watch the changes this bear-dominated $ 1.5 billion expiration will bring to the Ethereum network and the price of its token .