Bitcoin bears need BTC price to go below $27K ahead of Friday’s $900M options expiry

May 11, 2023 Coin Telegraph

<div>Bitcoin bears need BTC price to go below K ahead of Friday's 0M options expiry</div>

Analysis

Bitcoin price giving up ground over the past week to slide below $28,000 has put bears in a better position for Friday's expiry.

The $900 million Bitcoin (BTC) weekly options expiry on May 12 might play a decisive role in determining whether the price will succumb below $27,000.

Bitcoin price rejected again at $30,000

BTC bears will try to take advantage of macroeconomic headwinds, Silk Road coins' FUD, and uncertainty caused by Bitcoin’s transaction fee spike to pull Bitcoin's price down in the next few days.

*Bitcoin 4-h price movements during option expiries. Source: TradingView*

The BTC/USD pair broke above $29,800 on May 6, but the tide quickly changed as the resistance proved stronger than anticipated.

The subsequent 8.2% two-day correction tested $27,400 support, favoring the thesis of sideways trading as investors evaluate the economic crisis dynamic and its potential impact on cryptocurrencies.

Meanwhile, Berkshire Hathaway owner and billionaire investor Warren Buffett is no longer optimistic about the U.S. economy’s growth. Such a pessimistic scenario for the global economy might explain why some Bitcoin traders decided to reduce exposure over the past week, greatly reducing the odds of breaking $30,000.

Bitcoin options: bulls were excessively optimistic

The open interest for the May 12 options expiry is $900 million, but the actual figure will be lower since bears were expecting sub-$28,000 price levels.

These traders got excessively optimistic after Bitcoin’s price rallied 11.2% between April 9 and April 14, testing the $31,000 resistance.

*Bitcoin options aggregate open interest for May 12. Source: CoinGlass*

The 1.65 call-to-put ratio reflects the imbalance between the $560 million in call (buy) open interest and the $340 million in put (sell) options.

But if Bitcoin’s price remains near $27,500 at 8:00 am UTC on May 12, only $11 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $28,000 or $29,000 is useless if BTC trades below that level on expiry.

Bitcoin bulls aim for $28,000 to balance the scales

Below are the four most likely scenarios based on the current price action. The number of options contracts available on May 12 for call (bull) and put (bear) instruments varies, depending on the expiry price.

The imbalance favoring each side constitutes the theoretical profit:

Between $25,000 and $27,000: 100 calls vs. 9,900 puts. Bears in total control, profiting $230 million.
Between $27,000 and $28,000: 400 calls vs. 5,000 puts. The net result favors the put (sell) instruments by $120 million.
Between $28,000 and $29,000: 1,500 calls vs. 2,100 puts. The result is balanced between put and call options.
Between $29,000 and $30,000: 3,300 calls vs. 800 puts. The net result favors the call (bull) instruments by $70 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For instance, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.

Ultimately, after it became clear that the Bitcoin network was working as designed, the selling pressure dissipated, causing Bitcoin’s price to stabilize around $27,500. Nevertheless, traders should be cautious as the bears are still in a better position for Friday’s weekly options expiry, favoring negative price moves.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Ethereum derivatives flirting with bearishness: Mind the $1,820 support

May 10, 2023 Coin Telegraph

Ethereum derivatives flirting with bearishness: Mind the ,820 support

basis

The failed rally above $2,000 on May 6 has proven that ETH bulls are nowhere near comfortable adding leveraged longs.

After a brief overshoot above $2,000 on May 6, the Ether (ETH) price has returned to the tight range between $1,820 and $1,950, which has been the norm for the past three weeks.

According to the latest Ether futures and options data, odds favor the Ether price breaking below the $1,820 support as professional traders have been unwilling to add neutral-to-bullish positions using derivatives contracts.

*Ether price in USD, 12-hour chart. Source: TradingView*

Not even the memecoin frenzy that has boosted Ethereum network demand was able to instill confidence in investors. The average Ethereum transaction fee skyrocketed to $27.70 on May 6, the highest in 12 months, according to BitInfoCharts data. As reported by Cointelegraph, one of the main drivers behind the increase was the insatiable demand for Pepe (PEPE), among other memecoins.

Moreover, the increased gas fees have driven users to layer-2 solutions, which could be interpreted as a weakness. For instance, it causes a decline in the total value locked (TVL) by removing deposits from the Ethereum chain, especially in decentralized finance (DeFi) applications.

Some analysts believe the $30 million Ether sale by the Ethereum Foundation contributed to ETH being unable to break above $2,000, as nearly 20,000 ETH were sent to the Kraken cryptocurrency exchange. The foundation’s last relevant transfer occurred in November 2021, when the price topped around $4,850 and subsequently declined by 80%.

On the macroeconomic side, the 4.9% U.S. April Consumer Price Index (CPI) data announced on May 10, slightly below consensus, further increased investors’ expectations of stable interest rates at the next Federal Reserve (Fed) meeting in June. CME Group’s FedWatch tool showed 94% odds of stability at the current 5% to 5.25% range.

Therefore, with no signs of a Fed pivot on the horizon, the demand for risk-on assets such as cryptocurrencies should remain under pressure. But, if investors fear that Ether has higher odds of breaking the 3-week sideways movement to the downside, this should be reflected in the ETH futures contract premium and increased costs for protective put options.

Ether futures reflect weak demand from longs

Ether quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, ETH futures contracts in healthy markets should trade at a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Ether three-month futures annualized premium. Source: Laevitas*

Ether traders have been extremely cautious in the past week, as there was no surge in demand for leverage longs during the recent rally above $2,000 on May 6. Presently at 1.4%, the ETH futures premium reflects a complete lack of appetite from buyers using derivatives contracts.

Ether options risk metric stood neutral

Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% call-to-put delta skew is a telling sign when arbitrage desks and market makers overcharge for upside or downside protection.

In short, if traders anticipate an Ether price drop, the skew metric will drop below 7%, and phases of excitement tend to have a positive 7% skew.

*Ether 30-day options 25% delta skew. Source: Amberdata & The Block*

As displayed above, the ETH options' 25% call-to-put delta skew has been neutral for the past two weeks, as the protective put options were trading at a fair price relative to similar neutral-to-bullish call options.

Ether options and futures markets suggest that pro traders are not confident, especially considering the 10.6% rally between May 2-6. Therefore, the weak derivatives indicators are more likely to flip bearish if the 3-week sideways movement breaks to the downside.

In other words, if Ether price breaks below $1,820, one should expect a much higher appetite for bearish bets using ETH derivatives, an indicator of distrust and a lack of demand for longs.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

How are Bitcoin options traders positioning for the US banking crisis?

May 4, 2023 Coin Telegraph

Banks

The total crypto market cap has been ranging sideways, but Bitcoin derivatives markets indicate pro traders don't expect any major price corrections.

For the past 14 days, cryptocurrency markets have been trading within an unusually tight 7.1% range. In other words, investors are unwilling to place new bets until there’s additional regulatory clarity, especially in the United States.

The total crypto market capitalization fell by 1% to $1.2 trillion over the seven days ending May 4, primarily as a result of Bitcoin's (BTC) 1.1% price decline, Ether's (BTC) 0.2% loss, and BNB trading down 1.4%.

*Total crypto market cap in USD, 12-hour. Source: TradingView*

Notice that the exact same $1.16 trillion to $1.22 trillion total market cap range previously stood for twelve days between March 29 and April 10. The conflicting forces: regulatory uncertainty weighing it down and the banking crisis pushing prices upward are likely the reason for the lack of risk-appetite on both sides.

SEC’s crypto crackdown could backfire

The Coinbase exchange, for instance, has been battling the U.S. Securities and Exchange Commission (SEC) regarding the need for clear rules for trading digital assets. The stakes were raised after the exchange was handed a Wells notice, a "legal threat" for "possible violations of securities laws", on March 22.

However, the latest decision has been favorable to Coinbase, as the court has instructed the SEC to clarify the security rules for digital assets within ten days.

On the other hand, the banking crisis seems not to have faded after the lender PacWest Bancorp reportedly announced that it was considering a buyout. The regional financial institution held $40 billion in assets, although some 80% of the loan book is dedicated to the commercial real estate and residential mortgages — a sector that has been plagued by rising interest rates.

The recent crypto sideways trend suggests that investors are hesitant to place new bets until there’s more clarity on whether the U.S. Treasury will continue injecting liquidity to contain the banking crisis, which favors inflation and positive momentum for scarce assets.

BTC, ETH derivatives show muted demand from bears

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Perpetual futures accumulated 7-day funding rate on May 4. Source: Coinglass*

The seven-day funding rate for Bitcoin and Ether was neutral, indicating balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. BNB was the only exception, as shorts have been paying 1.4% per week to keep their positions open indicating bearishness.

To exclude externalities that might have solely impacted futures’ markets, traders can gauge the market's sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are used for bearish ones.

The expiration of options can have a significant impact on the market, particularly if there are a large number of contracts involved. When options contracts expire, the holders of these contracts may choose to exercise their rights, which can result in buying or selling pressure on the underlying asset. This can lead to increased volatility in the price of Bitcoin, which resulted in a $575 million advantage for bulls in the latest April 28 expiry.

A 0.70 put-to-call ratio indicates that put option open interest lags the more bullish calls and is, therefore, bullish. In contrast, a 1.40 indicator favors put options, which can be deemed bearish.

*BTC options volume put-to-call ratio. Source: Laevitas.ch*

The put-to-call ratio for Bitcoin options volume has been below 0.90 since April 26, indicating a higher preference for neutral-to-bullish call options. More importantly, even as Bitcoin briefly corrected down to $27,700 on May 1, there was no significant surge in demand for the protective put options.

Traders pricing low odds of a break above $1.2T

The option market shows whales and market makers unwilling to take protective puts even after Bitcoin crashed 7.8% on May 1. However, given the balanced demand on futures markets, traders seem hesitant to place additional bets until there’s clarity on whether the U.S. Treasury will continue to bailout the troubled regional bank sector.

It is unclear whether the total market capitalization will be able to break through the $1.22 trillion barrier. But one thing is for sure: professional traders are not betting on a crypto price crash given that the demand for protective puts has been muted.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Cathie Wood’s ARK Invest Rapidly Accumulating Coinbase (COIN) Stock As Crypto Exchange Goes International

May 3, 2023 The Daily Hodl

The Fed has little ammo left as $30K Bitcoin price becomes key battle line

May 3, 2023 Coin Telegraph

Bitcoin Price

BTC options and futures markets show no use of excessive leverage from buyers, a healthy indicator as the $28,000 support gets retested.

The Bitcoin price successfully defended the $28,000 support on May 2, but it has yet to prove the strength needed to reclaim the $29,200 level from April 30.

$30K becomes crucial for Bitcoin bulls

Some analysts will pin the recent downtrend on the expectation of an interest rate increase by the United States Federal Reserve on May 3, but in reality, the market is pricing 92% odds of a modest 25-basis-point increase to its highest level since September 2007.

$DXY up/#Bitcoin down on yesterdays PMI data release.

Market is now pricing in a very high probability of 25bps raise at tomorrows #FOMC.

This is likely mostly priced in for BTC, but the comments afterwards (more rates/pause) will likely bring the volatility. https://t.co/H5qtGpd8gA pic.twitter.com/BmdsNRtb1f
— Decentrader (@decentrader) May 2, 2023

As the market intelligence platform Decentrader pointed out, the comments from Fed chairman Jerome Powell are more likely to bring surprise elements, either pointing to further measures to slow down the economy or signaling higher odds of the terminal interest rate being close to 5%. Powell is set to hold a press conference at 2:30 pm Eastern Time.

From an employment perspective, the central bank has reason to believe that the market continues to be overheated. The U.S. government reported 1.6 job openings for every unemployed worker in March. Moreover, according to the “ADP National Employment Report” released on May 3, private payrolls increased by 296,000 jobs in April, well above the 148,000 market consensus.

However, raising interest rates has negative consequences for families and small businesses in particular. Financing and mortgages become more costly, while investing in fixed income becomes more attractive. Such an undesired effect of curbing inflation could further shake the core of the financial system as shown by the latest bank failure, this time of First Republic Bank.

Therefore, an eventual Bitcoin (BTC) price breakthrough above $30,000 could be a definitive sign of investors’ perception shifting from seeing Bitcoin as a risk asset to a scarce digital asset that directly benefits from a weaker traditional banking system.

But to gauge whether Bitcoin’s resilience above $28,000 is sustainable, an investor must analyze if excessive leverage has been used by buyers and whether professional traders are pricing higher odds of a market downturn using BTC derivatives.

Bitcoin futures show low demand from leverage buyers

Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, futures contracts in healthy markets should trade at a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Bitcoin two-month futures annualized premium. Source: Laevitas*

The data suggests Bitcoin traders have been extra cautious over the past couple of weeks. Even as the BTC price flirted with $30,000 on April 26, there were no signs of demand for leveraged longs.

Moreover, the Bitcoin futures premium has stagnated near 2% since April 23, suggesting that buyers are unwilling to use leverage, which is healthy for the market. By avoiding futures contract exposure, it greatly reduces the risk of large liquidations during negative Bitcoin price moves.

Bitcoin options traders remain neutral

The Bitcoin options market can also help a trader understand whether a recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign when arbitrage desks and market makers overcharge for upside or downside protection.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.

*Bitcoin 60-day options 25% delta skew. Source: Laevitas*

The option delta's 25% skew has shown balanced demand between call and put options for the past four weeks. That should come as a surprise given that the Bitcoin price rallied 10% between April 25 and April 30, when it last tested the $30,000 resistance.

Consequently, Bitcoin options and futures markets suggest that professional traders are not placing their chips on the BTC price breaking above $30,000 anytime soon. On the other hand, those whales are pricing in similar odds of surprise positive and negative moves.

Ultimately, given that the Fed clearly has a limit to raising interest rates without causing a recession, Bitcoin’s price should be positively impacted, regardless of the decision on May 3.

Fed chair Powell will ultimately force the U.S. Treasury to inject more money into the economy to contain the banking crisis, which will be beneficial for a scarce asset such as Bitcoin.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Gold Slides on Higher US Treasury Yields, Dollar

April 19, 2023 Bitcoin.com

CME Group to expand Bitcoin and Ether option expiries after record daily volume

April 17, 2023 Coin Telegraph

CME

The CME Group aims to offer market participants more accuracy and flexibility in managing the risk of short-term fluctuations in the prices of Bitcoin and Ether.

On Apr. 17, derivatives marketplace Chicago Mercantile Exchange (CME) Group, announced it will broaden its range of cryptocurrency options by adding new options to its standard and micro-sized Bitcoin (BTC) and Ether (ETH) contracts. Pending regulatory review, these new contracts will be available from May 22, and expiries will be available every day of the business week from Monday to Friday.

According to the announcement, CME Group's expanded suite of cryptocurrency options will include new expiry dates for Bitcoin and Ether futures contracts. These options will now expire every day from Monday to Friday, providing traders with greater flexibility to manage short-term price risks. Furthermore, options on micro-sized Bitcoin and Ether futures contracts will add Tuesday and Thursday expiries to their existing Monday, Wednesday, and Friday contracts. The newly added expiries will complement the existing monthly and quarterly expiries that are already available across all Bitcoin and Ether options on futures contracts.

The move, according to CME Group, is aimed at providing market participants with greater precision and versatility in managing short-term Bitcoin and Ether price risk. It also comes at a time of heightened market volatility in the digital asset sector.

CME Group's Bitcoin and Ether futures and options complex has already achieved a record daily average notional of more than $3 billion through Q1 2023. This signifies an increase in client demand for liquid hedging tools. The complex achieved other trading highlights as well, including a record 11,500 contracts and open interest averaging a record 24,094 contracts for Bitcoin futures and options in Q1 2023. In addition, CME Group's Bitcoin and Ether futures and options have a surge in trading volumes, with a record 2,357 Bitcoin options contracts traded on March 22, and a record open interest (OI) of 14,700 contracts on March 31.

CME Group introduced its first BTC futures contract in December 2017, followed by an ETH futures contract in February 2021. To cater to the increasing demand for cryptocurrency investment options, the exchange expanded its offerings in 2022 to include micro BTC and ETH futures. Additionally, it launched euro-denominated BTC and ETH futures when the euro was trading at parity with the US dollar, which is currently worth around $1 per euro at the time of writing.

As at the time of publication, the price of ETH is at $2,085 and the price of BTC is at $29,503, falling below its previous high of $30,000.

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Healthy Bitcoin rally: What does a margin lending ratio drop mean for BTC price?

April 15, 2023 Coin Telegraph

Analysis

Will $30,000 BTC price hold? Bitcoin market structure remains bullish with another 10% gain on the table as sellers refrain from shorting.

Bitcoin (BTC) price rallied over 10% between April 9 and April 14, marking the highest daily close in more than ten months. While some analysts may argue the move justifies a degree of decoupling from traditional markets, both the S&P 500 and gold are near their highest levels in over six months.

Bitcoin price breaks $30,000 despite macro headwinds

Bitcoin’s gains and rally above $30,000 also happened while the dollar strength index (DYX), which measures the U.S. currency against a basket of foreign exchanges, reached its lowest level in 12 months.

The indicator fell to 100.8 on April 14 from 104.7 one month prior as investors priced in higher odds of further liquidity injections by the Federal Reserve.

The latest Federal Reserve’s monetary policy meeting minutes, released on April 12, made explicit reference to the anticipation of a “mild recession” later in 2023 due to the banking crisis. Even if inflation is no longer a primary concern, the monetary authority has little room to raise interest rates further without escalating an economic crisis.

Even if inflation is no longer a primary concern, the monetary authority has little room to raise interest rates further without escalating an economic crisis.

Strong macroeconomic data explains investors’ bullishness

While the global economy may deteriorate in the coming months, recent macroeconomic data has been mostly positive. For example, the European Union's statistics office reported that industrial production in the 20 member countries increased 1.5% month on month in February, whereas economists polled by Reuters expected a 1.0% increase.

Furthermore, China's latest macroeconomic data showed an encouraging trend, with exports increasing 14.8% year on year in March, snapping a five-month decline and surprising economists who expected a 7% decline. As a result, China's trade balance for March was $89.2 billion, far exceeding the $39.2 billion market consensus.

The contrast between the current economic momentum and the forthcoming recession triggered by higher financing costs and a reduced appetite for risk among lenders causes Bitcoin investors to question the sustainability of the $30,000 support.

Let's look at the Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market environment.

BTC derivatives show no excessive leverage from longs

Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to leverage their positions.

OKX, for instance, provides a margin lending indicator based on the stablecoin/BTC ratio. Traders can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only bet on the decline of a cryptocurrency's price.

*OKX stablecoin/BTC margin lending ratio. Source: OKX*

The above chart shows that OKX traders' margin lending ratio decreased between April 9 and April 11. That is extremely healthy as it shows no leverage has been used to support Bitcoin's price gains, at least not using margin markets. Moreover, given the general bullishness of crypto traders, the current margin lending ratio of 15 is relatively neutral.

The long-to-short metric excludes externalities that might have solely impacted the margin markets. In addition, it gathers data from exchange clients’ positions on the spot, perpetual and quarterly futures contracts, thus offering better information on how professional traders are positioned.

There are occasional methodological discrepancies between different exchanges, so readers should monitor changes instead of absolute figures.

*Exchanges' top traders Bitcoin long-to-short ratio. Source: Coinglass*

Interestingly, despite Bitcoin breaking $30,000 for the first time in 10 months, pro traders have kept their leverage long positions unchanged, according to the long-to-short indicator.

For instance, the ratio for Huobi traders stood firm near 0.98 from April 9 until April 14. Meanwhile, at crypto exchange Binance, the long-to-short slightly increased, favoring longs, moving from 1.12 on April 9 to the current 1.14. Lastly, at crypto exchange OKX, the long-to-short ratio slightly declined, from 1.00 on April 9 to the current 0.91.

Moreover, Bitcoin futures traders were not confident enough to add leveraged bullish positions. Thus, even if Bitcoin price retests $29,000 in terms of derivatives, bulls should be unconcerned because there has been little demand from short-sellers and no excessive leverage from buyers.

In other words, Bitcoin's market structure is bullish, where BTC price can easily rally another 10% to $33,000 given sellers are currently scared to short it.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

London Stock Exchange may provide clearing services for BTC derivatives starting in Q4

April 13, 2023 Coin Telegraph

bitcoin futures

LCH SA will team up with the FCA-regulated GFO-X trading venue to create a centrally cleared, regulated trading environment.

The United Kingdom could see its first centrally cleared trading venue for digital asset derivatives due to a partnership between a London Stock Exchange Group (LSEG) business and trading startup Global Futures and Options (GFO-X). They intend to launch the service in the fourth quarter of this year.

According to an April 11 announcement, LCH SA, the Paris-based subsidiary of the LSEG clearinghouse, is set to provide clearing services for dollar-denominated, cash-settled Bitcoin (BTC) index futures and options contracts traded on the GFO-X venue. The plan still requires regulatory approval.

Digital Assets: LCH SA To Offer Clearing Services For Bitcoin F&O Contracts Traded On GFO-X https://t.co/n1bF2ZbZwp
— DailyAlts (@DailyAlts) April 13, 2023

GFO-X is regulated by the United Kingdom's Financial Conduct Authority (FCA) to operate a multilateral trading facility. GFO-X CEO and cofounder Arnab Sen described the company as “The UK’s first regulated and centrally cleared trading venue focused entirely on digital asset futures and options.”

LCH SA has created a new, segregated clearing service called LCH DigitalAssetClear. Frank SoussanM head of LCH DigitalAssetClear, said:

“Bitcoin index futures and options are a rapidly growing asset class, with increasing interest among institutional market participants looking for access within a regulated environment they are familiar with.”

Traditional financial institutions and other major corporations are increasingly moving into digital assets. In January, Samsung launched a Bitcoin exchange-traded fund (ETF) on the Hong Kong Stock Exchange. The Tel Aviv Stock Exchange is seeking to expand its crypto trading. Meanwhile, a Boerse Stuttgart Digital subsidiary recently received approval from German regulators to offer crypto custody service. Nasdaq is expected to launch a crypto custody service in the first half of this year.

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Ethereum price metrics hint that ETH might not sell-off after the Shapella hardfork

April 12, 2023 Coin Telegraph

Coin Telegraph

ETH traders are exercising caution ahead of the April 12 Shapella hardfork, but the signal to watch is staking unlock requests.

Ether (ETH) price has increased by 58% year to date, but it has far underperformed the market leader Bitcoin (BTC). In fact, the ETH/BTC price ratio has dropped to 0.063, its lowest level in 9 months.

Analysts believe that the majority of the movement can be attributed to the Ethereum network's upcoming Shapella hard fork, which is scheduled for April 12 at 10:27 p.m. UTC.

*Ether / Bitcoin price ratio at Binance. Source: TradingView*

The Ethereum network upgrade will allow stakers to unlock their Ether rewards or stop staking entirely. By April 11, over 170,000 ETH withdrawals were requested, according to the analytics firm Glassnode. However, the total staked on the Beacon Chain exceeds 18.1 million ETH, which has traders fearful until more information on ETH’s potential selling pressure becomes available.

Is the price impact of the Shapella fork already priced in?

The staking unlock was widely known and expected, so traders could have anticipated the movement. Some analysts have gone so far as to call the hard fork a "buy the news" event.

Literally everyone: “Ethereum Shanghai is a buy the news event because everyone thinks it is a sell the news event” pic.twitter.com/TpyL1TDnPj
— HORSE (@CanteringClark) April 9, 2023

Using a meme, trader @CanteringClark is likely expressing dissatisfaction with the theory, but to invalidate the hypothesis, one must investigate potential reasons for ETH’s underperformance other than the much anticipated hard fork.

For starters, the Ethereum network's average transaction fee has been above $5 for the past five weeks and the Shapella fork does not address the issue, despite minor improvements. This alone lowers the chances of a bullish breakout following the upgrade, as most decentralized applications (Dapps) and projects will continue to prefer second layer and competing networks.

Furthermore, volume at Ethereum-based decentralized exchanges (DEX) have fallen by 84% since a weekly peak of $38.2 billion on March 5. The most recent data for the week ending April 2 was $6.4 billion, according to DeFiLlama. In the same period, competing blockchains saw 60% lower volumes on average, a sign that Ethereum lost market share.

According to Paul Brody, EY's global blockchain leader, one reason for Ether's price underperformance relative to Bitcoin could be "the battle to keep Ethereum sufficiently and properly decentralized." Brody cites exchanges as highly centralized custodial validators, as well as some semi-centralized players and staking pool operations that invest funds from tens of thousands of individual crypto wallets.

Ether derivatives display balanced bets between bulls and bears

Let's examine Ether derivatives metrics to determine the current market position of professional traders. For example, the open interest in Ether options for the weekly expiry on April 14 is $510 million, with neutral-to-bullish call instruments outnumbering protective put options by 36%.

Those ETH options bulls could come up empty-handed because 60% of their bets were placed at $2,000 or higher. As a result, if Ether's price remains between $1,800 and $1,900 on April 14 at 8:00 a.m. UTC, the outcome is balanced between call and put options. Furthermore, an expiry price between $1,900 and $2,000 represents a mere $100 million advantage for bulls, which is unlikely to justify the cost of a price pump.

Futures markets should also be examined to determine whether the Shapella hard fork has caused investors to become more risk-averse. Ether quarterly futures are popular among whales and arbitrage desks, and they typically trade at a slight premium to spot markets, indicating that sellers are requesting more money to postpone settlement.

As a result, futures contracts in healthy markets should trade at a 5% to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Ether 3-month futures annualized premium. Source: Laevitas.ch*

The premium on Ether futures is currently 2%, down from 4% the previous week. Despite being below the 5% neutral threshold, it shows no excessive short demand.

Traders should monitor staking unlock requests

Based on Ether derivatives, there is no reason to believe professional traders expect a significant price correction as a result of the staking unlock. Nonetheless, given the high transaction fees and declining DEX activity, the chances of a "buy the news" event are slim.

Professional traders would have used derivatives instruments to bet against Ether's price because the event was widely publicized, which hasn't happened given the ETH futures' premium. There are no obvious reasons for a rally, but derivatives traders do not anticipate any panic selling. So, unless the number of staking unlock requests significantly increases, Ether should remain near $1,900 for the foreseeable future.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

futures

Bitcoin price rejected again at $30,000

Bitcoin options: bulls were excessively optimistic

Bitcoin bulls aim for $28,000 to balance the scales

Ether futures reflect weak demand from longs

Ether options risk metric stood neutral

SEC’s crypto crackdown could backfire

BTC, ETH derivatives show muted demand from bears

Traders pricing low odds of a break above $1.2T

$30K becomes crucial for Bitcoin bulls

Bitcoin futures show low demand from leverage buyers

Bitcoin options traders remain neutral

Bitcoin price breaks $30,000 despite macro headwinds

Strong macroeconomic data explains investors’ bullishness

BTC derivatives show no excessive leverage from longs

Is the price impact of the Shapella fork already priced in?

Ether derivatives display balanced bets between bulls and bears

Traders should monitor staking unlock requests

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