It has become more expensive to use derivatives to insure against a decline in ether (ETH) compared to bitcoin (BTC), signaling a shift in market sentiment against the second-largest cryptocurrency by market cap, data from RialCenter shows.
This change in sentiment follows weeks of institutional investors favoring ether over its larger counterpart.
According to data from Amberdata, ether’s 25-delta risk reversals for options expiring in August and September were trading at -2% to -7%. This indicates that put options, which provide protection against price decreases, carry a 2% to 7% premium over call options, reflecting growing concerns about potential downside risks.
In contrast, bitcoin’s short-term put options traded at a 1%-2.5% premium over calls, suggesting relatively limited fears of downside risk.
A put option gives the buyer the right to sell the underlying asset at a predetermined price on or before a specified future date. A put buyer is typically bearish, looking to hedge spot market holdings or profit from a price decline, whereas a call buyer is bullish.
The 25-delta risk reversal is an options strategy comprising a long put position and a short call option (or vice versa) with a 25% delta, meaning the strike prices for both options are relatively distant from the underlying asset’s market rate.
Risk reversals are commonly monitored in the FX markets to assess sentiment over various time frames. Positive values indicate bullish sentiment, while negative values suggest the opposite.
Ether, the native token of the Ethereum blockchain, surged 48% in July, reaching a seven-month high of $3,941 and significantly outpacing bitcoin’s 8% gain. However, most of this advance occurred in the first half of the month, with the rally losing momentum amid concerns that it was driven primarily by corporate adoption and lacked support from on-chain activity.
Ether was recently trading at $3,600, down more than 6% in the past 24 hours, while bitcoin had declined 3% to $114,380, according to RialCenter data.
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