Ethereum could encounter sell pressure after ETF debut, amid surge in implied volatility: analyst

Derivatives market participants are expecting high volatility for ether this week due to the commencement of spot Ethereum ETF trading on Tuesday — with one analyst predicting potential sell pressure on the launch day followed by a gradual recovery.

On Friday, the Chicago Board Options Exchange confirmed that several spot Ethereum exchange-traded funds from fund managers — such as Fidelity, Franklin Templeton and VanEck — will commence trading on Tuesday, July 23. In light of this, ether options open interest reflects market anticipation of an upcoming increase in price fluctuations for the digital asset. For instance, ether options implied volatility has risen from 56% to 70% in the past week, according to Deribit data. 

According to BRN analyst Valentin Fournier, the price of ether could dip in the immediate wake of spot Ethereum ETF trading. "Ethereum may face significant selling pressure at the start of the week, that the ETF launch might not immediately counteract," Fournier told The Block.

The forecast concurs with the distribution of open interest for frontend ether options, where the put-call ratio has spiked to 1.45, according to Deribit data. This indicates a higher number of put options relative to call options, suggesting that traders are expecting potential immediate downside or are seeking to hedge against price declines.

In the longer term, Fournier anticipates the price of ether drops to levels between $2,800 and $3,100 before bouncing back toward $4,000 due to the gradual effect of growing spot ETF demand.

Ether price to appreciate in the medium to long-term

Examining the weekly and monthly outlook for ether, derivatives traders appear to be positioning for a potential increase in the price of the digital asset as the end-of-week options expiry approaches. According to Deribit data, open interest in ether options is heavily concentrated around the $3,700 strike price ahead of Friday's expiry.

The concentration of open interest at the $3,700 strike price suggests that traders are betting on ether's price rising above this level by the options expiry. This positioning is generally considered bullish, as it indicates confidence that the price will move higher.

Fournier recommends maintaining exposure to the potential for positive momentum in ether. However, he still favors bitcoin because, "the hype and inflows are already priced in for the second largest digital asset by market capitalization," he added.