Ethereum Put Options Demand Surges, ETH Price Correction Soon?

The world’s second-largest cryptocurrency Ethereum (ETH) has been holding strongly above $4,000 as the ETH price gears for a further rally to a new all-time high all the way to $5,000. However, the derivatives data tells a different story.

Ethereum Price Correction Ahead?

Market analysts at QCP Capital report a significant development in the Ethereum (ETH) options market, with risk reversals recently turning negative for front-date expiries. This reversal indicates a surge in demand for put options, potentially driven by concerns over the vulnerability of speculative long positions.

According to QCP Capital, the shift to negative risk reversals suggests that traders are increasingly seeking protection against a possible downturn in ETH prices. Altcoin speculators, in particular, may be purchasing ETH puts as a means of hedging against downside risks in alternative cryptocurrencies.

The emergence of negative risk reversals prompts caution among market participants, with QCP Capital expressing wariness about a potential market correction, particularly considering the significant leverage present in the market. However, despite these concerns, analysts at QCP Capital anticipate that any dip in prices will be met with aggressive buying activity.

In addition to the negative risk reversals, QCP Capital notes a slight drop in ETH spot-forward spreads, contrasting with elevated spreads observed in Bitcoin (BTC) markets. This divergence suggests that a sharp decline in ETH spot prices could lead to further compression in forward spreads as leveraged long positions are liquidated.

All Eyes on the Dencun Upgrade

The Ethereum network is on the brink of a notable evolution with its forthcoming software update, Dencun, scheduled for March 13th. Anticipated to bring about cost reductions, particularly within Layer 2 networks, the Dencun upgrade merges elements from the “Deneb” and “Cancun” updates, introducing a novel approach to data storage within the Ethereum ecosystem.

Previously, Layer 2 blockchains like Arbitrum, Polygon, and Base (from Coinbase Global Inc.) have relied on Ethereum for data storage purposes.