The ratio of open interest in Ether (ETH) put options to open interest in Ether (ETH) call options soared to 0.47 on Tuesday, which is the highest it has been since May of last year.
That could mean that bearish bets are building up on the market before a big update to the Ethereum network on April 12 that will, among other things, make it possible to withdraw Ether tokens that have been staked.
If the number of available put and call options is less than 1, investors are more likely to buy call options (which are wagers on the price going up) than put options. (bets on the price dropping).
Even though the ratio is still much below 1, which means that investors still strongly favor bullish options bets, the recent rise in the ratio implies that these bullish bets have been drastically cut down on in recent days.
At the end of March, the Put/Call open interest ratio for Ether was about 0.37. Since then, it has jumped quickly.
The spike in the ratio could be due to speculations that there will be a sell-off after the upgrade, but it could also be because more traders are interested in shorting Ether now that its price has gone up.
Last time I checked, the price of ETH was slightly around $1,900. In recent days, it has made good headway toward $2,000, though.
It’s important to note that a significant decline in the dollar value of all open Ether options since the end of March may also be to blame for the spike in Ether’s put/call ratio.
Last time I checked, open interest in Ether options was just around $5 billion, but it had reached as high as $7.5 billion not long ago.
At the conclusion of each quarter, there is generally a substantial reduction in open interest as investors let their options expire. It appears likely that bullish call option bets were the ones that were most likely to expire.
It will be fascinating to observe if investors rebuild their option exposure during the next quarter and, if so, how much this pulls the put/call ratio back down, if at all.
On April 12, the Ethereum network will get a number of updates, the most important of which will let staked Ether coins be taken out of the staking smart contract.
The renovations have been given the moniker “Shapella,” which is a mix of the names Shanghai and Capella.
Shanghai is the name of the hard fork happening on the execution layer of the Ethereum blockchain. Capella is the name of the upgrade happening on the consensus layer.
Analysts think this is good for the network in the long run because it will make it easier for more ETH owners to stake their tokens. However, some have warned that there could be short-term price pressure as investors sell ETH tokens that have been stuck in staking contracts for a long time.
Before the Ethereum blockchain switched to proof-of-stake last September, you could stake ETH on Ethereum’s beacon chain as early as late 2020.
Others have warned that a successful Shanghai upgrade might lead to profit-taking, which could drop the price of ETH in the short term. This is because ETH has gained more than 55% since the beginning of the year, which is a huge amount.
The bulls in ETH would probably jump on any drop.
Short-term technicals for ETH, on the other hand, look quite good right now. Recently, the cryptocurrency broke through a critical resistance area at $1,850 and is now looking to challenge the $2,000 mark soon.
In the past few weeks, the 21-Day Moving Average has been a decent place for the cryptocurrency to find support. All of its main moving averages are going up in a row, which is another clue that the stock is going up.
The technicals are also good in the long run. The 14-Day Relative Strength Index (RSI) for ETH is not yet in the “overbought” zone, which means there is less chance of profit-taking in the near future.
Last month, ETH saw a big bounce off of its 200-day moving average, which is a strong medium-term bullish sign.
The “golden cross,” which happened in early February when the 50-Day Moving Average crossed above the 200-Day Moving Average, is another favourable indicator for ETH’s technical outlook in the medium term.
Also, macro tailwinds like the idea that the Fed would slash interest rates later this year to stop a bank crisis and recession continue to give crypto markets a lot of support.
Bulls will probably keep purchasing when the price of Ether goes down in the foreseeable future.
A drop back to the resistance-turned-support area around $1,700, which is also close to ETH’s 50-Day Moving Average, could be a good time to purchase after the Shanghai upgrade.
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