Deribit sees high demand for Ethereum call options ahead of spot ETF decision

Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has seen a spike in demand for its call options, as traders anticipate a positive outcome for the spot exchange-traded fund (ETF) applications pending with the U.S. Securities and Exchange Commission (SEC).

Call options signal bullish sentiment

According to data from Deribit, the largest cryptocurrency derivatives exchange, there is significant open interest in the $2,250 strike price Ethereum call option expiring on January 19th. There are more than 24,600 call options with this condition, and the outstanding interest is $62 million, accounting for the largest proportion of all contracts.

Options are investment products that allow investors to hedge their exposure to spot and futures markets through leveraged betting on underlying assets. Call options give the holder the right, but not the obligation, to buy the underlying asset at a predetermined price (strike price) on or before a specified date (expiration date). Put options give the holder the right, but not the obligation, to sell the underlying asset at a predetermined price on or before a specified date.

The focus of open interest is centered around the Ethereum call option with a strike price of $2,250 on January 19, as observed on Deribit

The fact that call options are traded in large quantities at a strike price of $2,250 means that many traders expect Ethereum to rise by that much until expiration on the 19th. This implies a bullish sentiment for the cryptocurrency, which is currently trading at $2,460, down 2.75% in the last 24 hours, according to CoinMarketCap.

Spot ETF approval could boost Ethereum price

One of the possible catalysts for the surge in Ethereum call options is the expectation for the approval of the spot ETFs by the SEC. Spot ETFs are funds that directly track the price of the underlying asset, in this case, Ethereum, by holding a large amount of the cryptocurrency itself. This would provide a convenient and regulated way for investors to gain exposure to Ethereum without having to deal with the technical and security issues of buying and storing the cryptocurrency themselves.

The SEC has already approved 11 spot Bitcoin ETFs, which started trading on January 11th, marking a historic milestone for the crypto industry. This has raised the hopes for the approval of the spot Ethereum ETFs, which have been filed by several major asset managers, including Fidelity, BlackRock, VanEck, and Invesco.

Luke Nolan, an Ethereum researcher at CoinShares, a digital asset investment firm, told The Block, “I think there is a 70% chance of Ethereum spot ETF approval this year.” However, he also cautioned, “There is a possibility that the market is overheating too quickly,” and added, “We expect approval as early as the fourth quarter of 2024, and it is unlikely that it will be approved before then.”

Ruslan Lienka, head of the Juhodler market, a crypto lending platform, diagnosed that there are several obstacles that will block the Ethereum spot ETF. “Ethereum is much more centralized than Bitcoin, so it has more similarities with securities,” he said. “The SEC is also aware of this fact.” However, he predicted, “In the long term, Ethereum will continue to be correlated with Bitcoin, and may temporarily perform better thanks to speculative sentiment regarding the possibility of ETF approval.”

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