A look at the Ethereum derivatives market indicates that the "merger" - a long-awaited update of the Ethereum network - is setting the stage for cryptocurrency traders to "buy the rumors and sell the news."
The Merge is expected to take place in September
This is according to blockchain intelligence firm Glassnode, which today reported a "backwardation" on ETH options and futures ahead of September, when the merger is expected to take place. The term backwardation refers to when the prices of an asset in the futures market are lower than its underlying spot price.
"If we look at the September contracts on [crypto derivatives exchange] Deribit, the directional trend of Ethereum traders is immediately clear," the report reads. "Call options outnumber put options in size, with traders betting on ETH prices above $ 2,2K, with significant open interest even at $ 5K."
A call option is a temporary guarantee that a trader can buy a certain asset at a predetermined price if he chooses. A put option is the same thing, but to sell an asset. According to Glassnode, the huge demand to buy premium calls shows a "state of extreme bullishness" for the price of ETH in September.
However, this trend reverses sharply in October as the demand for ETH options appears to be decreasing. In fact, the implied volatility of ETH - a metric that measures market expectations about the future price of an asset - is relatively higher in downward price predictions than in upward ones. This indicates that traders are "paying a premium for the protection of 'sell-the-news' put options after the merger," according to Glassnode.
At the moment, the open interest of Ethereum options is equal to 6,6 billion dollars, higher than that of Bitcoin, which for the first time in history is equal to 4,8 billion dollars. As noted in the report, Bitcoin derivatives markets currently show poor directional bias.
Ethereum up
La quotation of ETH has experienced a surge after the revelation that Ethereum developers are now confident that the merger will take place on or around September 19. Merge refers to a protocol change that will combine the current Ethereum proof-of-work mainnet with the proof-of-stake beacon chain. Merge is therefore the final step to complete Ethereum's long-awaited transition to proof of stake.
The developers expect this update, also referred to as “Ethereum 2.0”, to make the current network, which has been subject to congestion and prohibitive transaction fees, faster and more scalable. The change also puts an end to Ethereum mining and will instead require network participants to stake, or commit, existing ETHs to create new ETHs and issue these coins as a reward for the stake.
In this way, the change is expected to have a deflationary impact on the cryptocurrency, significantly reducing the rate of creation and distribution of new ETHs. If the demand for cryptocurrency remains high, this could have a positive impact on its price. In a blog post on Thursday, BitMEX co-founder Arthur Hayes predicted that this phenomenon will help “drive up the price of Ether exponentially,” potentially as high as $ 5000 by March 2023.
