Launching Spot ETH ETF – Are Ethereum Derivatives Traders Set Up?

Ether has been trading in a narrow 6% range between $3,370 and $3,560 for the past week. Notably, Ether's last high above $3,600 occurred on June 17, potentially missing a major opportunity for the Ether exchange-traded fund (ETF) in the United States on July 23, an event that had been awaited for more than three years.

With Bitcoin (BTC) trading less than 10 percent from its all-time high, no one can blame the lack of momentum in cryptocurrencies. After all, U.S.-listed spot Bitcoin ETFs accumulated $961 million in net income over the past two trading days. The lack of excitement for Ether (ETH) is evident in ETH derivatives metrics. But does this mean traders are betting on the downside?

In Ether ETFs flows and Mt. Gox Uncertainty on Bitcoin Transfers

Analysts were optimistic about net earnings for the spot Ether ETF. However, there have been concerns about potential exits from Grayscale Ethereum Trust (ETHE), which has previously been converted from a trust fund that does not allow investors to withdraw funds. Greyscale's decision to keep its ETE expense fees at 2.5%, which is much higher than its competitors, also affects this activity.

The Spot Ether ETF is expected to generate up to $4 billion in revenue in its first 12 months of trading, crypto market maker Wintermuth wrote in a July 21 research report. Others, like ASXN crypto asset manager, were more optimistic, expecting $4 billion in net income in less than five months. The firm said the launch of Greyscale's mini Ether ETF, which charges a fee of 0.15%, will eventually reduce outflows.

Regardless of the amount of initial demand for Ether ETFs, cryptocurrency investors Mt. Gox exchange estate has moved 47,500 BTC, worth 3.2 billion dollars, on July 23. Bankruptcy process plan announced on July 5 established a plan to make payments. For creditors. The uncertainty stems from not knowing how much of the 140,000 BTC held by Mt Gox addresses will be sold in the market.

Essentially, Ether bulls are reluctant to add positions ahead of cumulative position ETF net flow data, at least for the first few days, fearing a potential sell-off driven by Bitcoin, which has been locked in for more than a decade. These concerns explain why Ether's price has failed to break above $3,600 over the past five weeks. But does this justify investors' lack of optimism based on ETH derivatives?

Ether derivatives show a lack of confidence, but there is a silver lining.

The options market provides insight into the dynamics ahead of the ETF's expected position. If the market is bullish, one typically sees a -7% delta skew, as put (sell) options become cheaper than the equivalent call (buy) options. Conversely, a deviation of more than 7% usually indicates a fear of price corrections.

The data shows that the Ether options skew failed to break below the neutral -7% threshold in the past two weeks. This is especially true since the price of ETH gained 21% between July 7th and July 21st, so Bloomberg analysts had high confidence in the Ether ETF launch.

Traders should consider ETH monthly futures markets to assess investment sentiment. In the independent market, these contracts trade at a 5%-10% annual premium (base rate) relative to regular spot ETH markets to compensate for their longer settlement times.

Related: Nansen Industry-Launches First Ether ETF Analytics Dashboard

Note that the ETH futures premium has held above the 10% neutral threshold for the past week, indicating moderate optimism. For comparison, Ether's price jumped 25% in mid-March after rising 77% in less than five weeks. Therefore, it would be incorrect to say that Ether investors are bearers. Additionally, the Ether ETF net flows represent a price that could rise if the lack of confidence is confirmed.

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