An Ethereum (ETH) exchange-traded fund (ETF) was recently approved in the United States on May 23, causing a surge of optimism among cryptocurrency options traders. This development had a significant impact on the implied volatility of call and put options, although it did not greatly affect the ETH spot market, according to Aurelie Barthere, the principal analyst at Nansen.
Barthere explained the current dynamics of the Ethereum options market, stating that funding rates are currently neutral. However, the news of the ETH ETF led to an increase in ETH call prices relative to puts, resulting in options traders becoming more bullish on ETH. Until March 28, 2024, ETH puts were the most expensive options in absolute terms and relative to calls, indicating a bearish sentiment among options traders. However, after this date, put option prices declined until May 16 and then partially recovered, possibly in anticipation of ETF approval. In recent days, call options have been more expensive than puts, which is expected.
Barthere also suggested a mean reversion strategy for traders to take advantage of lower volatility and protect themselves. By analyzing the z-score of the difference between calls and puts, traders can implement this strategy.
In addition to the options market, the Ethereum ecosystem as a whole is undergoing significant changes. The approval of the ETF seems to have reignited investor interest, as ETH-pegged exchange-traded products received $33.5 million in inflows over the past week, reversing a previous trend of negative flows. Furthermore, in the last 30 days, the total value locked in decentralized applications (DApps) based on Ethereum increased by 21%, surpassing $116 billion and solidifying its 70% dominance in the decentralized financial ecosystem, as reported by data aggregator DefiLlama.
It is important to note that the views and opinions expressed in this article are for informational purposes only and should not be considered as financial or investment advice. Investing or trading cryptocurrencies carries a risk of financial loss.
In a related development, Cathie Wood, the founder of ARK Invest, mentioned that crypto became a US election issue, which could have contributed to the sudden approval of Ethereum ETFs. This further highlights the “legitimate possibility” of an Ethereum ETF coming into operation in June.