ETH options market is seeing explosive growth, seemingly fueling the rally of Ethereum price past its yearly high
Since the beginning of the second quarter of 2020, the Ethereum price has witnessed a sustained uptrend, and the ETH options market is one of the main catalysts of the rally.
Is DeFi a catalyst for the Ethereum price?
Deribit Insights, research arm of leading options trading platform, said:
“ETH option volumes break all-time notional value highs, with 3:2 Call. Puts traded, 1m vol jumps from 52% to 67%, Call skew indicating upside Calls in demand across maturities. BTC 1m vol at 50%, and has not justified the same response, as ETH spot massively outperformed BTC.”
The total Ethereum options open interest hits a record high | Source: Skew.com
Compared to February 2020, when the price of Ethereum peaked below $ 290, the funding ratio of future exchanges was significantly low. It turns out that retail demand from the spot and options markets is driving ETH, rather than the future.
The term funding rate Contin to a mechanism that incentivizes long or short holders based on market sentiment. If there are more longs in the market, short holders are incentivized, and vice versa.
In February, the future funding rate of Ethereum ranges from 0.1% to 0.2%. This time, it was at 0.06% on BitMEX, with an estimated rate of 0.03%. This shows that the futures market is not the main driving force of the ongoing rally. Because the futures market allows for leverage up to 100 times on multiple exchanges, it can make a rally more vulnerable.
Currently, market data, such as open volume and interest rates, show that the majority of Ethereum demand is coming from the spot and options market. If the funding ratio of the Ethereum futures contract is close to the average, it could catalyze a more stable upward trend by 2020.
The biggest underlying catalysts that have supported Ethereum since June seem to be the explosive DeFi field and prediction of ETH 2.0. Due to increasing user activity on the DeFi protocol, the demand for ETH when gas increases. User activity is so high that the Ethereum blockchain network is starting to get clogged.
Bobby Ong, COO at CoinGecko, explained:
Persistently high gas price on Ethereum is here to stay until the scalability solutions that everyone has been talking about are implemented. 100 gwei transactions are here to stay for some time. DeFi yield farming is crowding out ALL other non-DeFi activity on Ethereum https://t.co/pNsojGMHFe
— Bobby Ong (@bobbyong) July 25, 2020
As a result, the revenue of mining companies has risen sharply, suggesting that the number of transactions on the Ethereum network is increasing rapidly.
Researchers at Glassnode said:
“Ethereum miner revenue from fees is surging and at an all-time high (7d MA). On the hourly chart, we’re seeing that currently more than a third of the #ETH miner revenue comes from fees rather than block subsidy – up from less than 5% in April.”
Ether’s rapid ascent to $309 could also be receiving a sentiment boost
The total value of funds locked into decentralized finance platforms (DeFi) reached $4 billion today. Currently, the top three DeFi platforms are Maker Aave and Compound with each having $ 875 million, $ 639 million, and $ 616 million locked in one type of contract. Data from DeFi Pulse shows that the decentralized financial sector grew strongly in 2020 when the value locked at the beginning of the year was just under $ 1 billion.
Total value locked (USD) in DeFi | Source: DeFi Pulse
As discussed in the previous market update, Ether is expected to push back to $ 317 if the peak on February 14, 2020, at $ 288.32 has been removed and the day’s increase. Seven to $ 309 is only $ 8 when topping the resistance cluster extends to $ 317.
After rising nearly 30% this week, there is expected to be a period of consolidation but if the bulls find the renewed or Bitcoin rally over the weekend, it’s likely the price could erase $ 317. and the absence of overhead resistance could see the target for 2019 high prices at $ 367.
You can also check Ethereum Price here.
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