While Ethereum (ETH) created history by taking over Bitcoin (BTC) in the options market, the ETH futures contract entered some price backwardation.
Ether appears to have taken over Bitcoin in the options market for the first time in history as the open interest (OI) of Deribit Ether options, valued at $5.6 billion, surpassed the OI of Bitcoin options worth some $4.6 billion by 32%.
OI is calculated by adding all contracts from opened trades and subtracting the contracts when a trade gets closed. It is primarily used as an indicator to determine market sentiment and the strength that exists behind these price trends.
Deribit is the world’s largest Bitcoin and Ether options exchange, accounting for over 90% of the global trading volume. The data acquired from the Deribit exchange showed that ETH options are mostly call options, with a put/call ratio of 0.26. Notably, the ETH Put/Call ratio has reached a new annual low as the Merge date gets closer.
Under the put option, buyers have the right but not the obligation to sell underlying assets at a predetermined price on or before a particular date. In general, put buyers are implicitly bearish, while a call option trader is bullish.
A put/call ratio that is greater than 0.7 or exceeding one represents bearish market sentiment, while a put/call ratio lower than 0.7 and dropping near 0.5 indicates an emerging bullish trend.
The recent surge of ETH OI in the options market with an underlying bullish sentiment among the traders is believed to be the result of the forthcoming Merge that is scheduled for the third week of September.
While Ether continues to see growing dominance within the options market, the ETH futures quarterly contracts, set to expire in December 2022, have dropped into backwardation, where the futures price becomes lower than the prevailing spot price. ETH’s spot and futures price grew to -$8 on August 1. While that might appear like a bearish sentiment, Bitcoin gained 15% after price backwardation in June.
Besides the growing bullish expectation for the forthcoming proof-of-stake (PoS) transition, analysts have also pointed to the possibility of an airdrop scenario in case of a chain split. A survey published by Galois Capital showed that 33.1% of the respondents think the upgrade would result in a hard fork, while 53.7% expected a smooth network transition.