Ether Options Shed Bearish Skew For First Time in 2 Months, ETH/BTC Ratio Eyes Big Move

The latest moves in crypto markets, in context

March 23, 2022

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Good morning, and welcome to First Mover. Here's what's happening this morning:

Market Moves: Bitcoin, ether drop as investors reassess bearish implications of lingering macro uncertainty.
Featured stories: Investors in the cryptocurrency options markets are showing less demand for protection against prolonged price declines in ether (ETH), the native cryptocurrency of the Ethereum blockchain. Trading indicators suggest that there might a big move coming in the ratio between ether's price and bitcoin's, known as ETH/BTC.

Today's newsletter was edited by Omkar Godbole and produced by Parikshit Mishra.

And check out the CoinDesk TV show "First Mover," hosted by Christine Lee, Emily Parker and Lawrence Lewitinn at 9:00 a.m. U.S. Eastern time.

Tim McCourt, senior managing director, CME Group
Daniel Lacalle, chief economist, Tressis
Damanick Dantes, markets reporter, CoinDesk

Market Moves

Bitcoin slipped to $42,000, pausing the post-Fed recovery rally as the U.S. stock futures pointed to a weak open. Ether fell under $3,000, with chart traders waiting for a bullish UTC close above critical resistance on technical charts.

Market participants continued to assess the implications of the recent hawkish moves by the Federal Reserve ahead of U.S. President Joe Biden's Europe trip to discuss additional sanctions on Russia.

"My take here is that fundamentals are very supportive, but fear of border risk appetite contagion is holding back the price action," Ilan Solot, a partner at the Tagus Capital Multi-Strategy Fund, said in an email.

"The recent bounce in global equities – concurrent with spiking inflation, hawkish Fed, and war – has left many investors unconvinced the recovery is sustainable," Solot added.

The cryptocurrency's 90-day correlation to the S&P 500, Wall Street's benchmark index, has hit a 17-month high of 0.495.

In other words, the cryptocurrency's near-term prospects appear tied to U.S. stocks and a continued rally in the S&P 500 could see bitcoin gain more ground. On Tuesday, the S&P 500 closed above its 200-day moving average – the first so-called bullish close in a month.

Also read: Bitcoin's Correlation to S&P 500 Hits 17-Month High

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Crypto Prices

Bitcoin (BTC)

See the latest price here

Ether (ETH)

See the latest price here

The following are the biggest movers in the CoinDesk 20 digital assets over the past 24 hours:

Biggest Gainers:

Asset	Ticker	Returns	Sector
Ethereum Classic	ETC	+9.6%	Smart Contract Platform
Internet Computer	ICP	+6.2%	Computing
Filecoin	FIL	+3.3%	Computing

Biggest Losers:

Asset	Ticker	Returns	Sector
Cosmos	ATOM	−3.5%	Smart Contract Platform
XRP	XRP	−3.0%	Currency
Bitcoin Cash	BCH	−2.9%	Currency

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.

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Latest Headlines

Ether Options Shed Bearish Skew, ETH/BTC Eyes Big Move

The demand to protect against a prolonged weakness in ether appears to have waned, according to data provided by the crypto derivatives analytics firm Skew.

The six-month put-call skew, which tells how much lower strike puts expiring in six months are being bid up versus higher strike calls, has declined from 5% to 0% this week, shedding bias for puts or bearish bets offering downside protection for the first time since Jan. 25.

The long-term gauge has flipped from bearish to neutral a week after Ethereum developers successfully tested the long-awaited merge of the programmable blockchain's proof-of-work and proof-of-stake chains, dubbed Eth 2.0.

The upgrade will allow users to hold coins in a cryptocurrency wallet to support network operations in return for newly minted coins and is likely to impact ether's price positively, analysts told CoinDesk.

Ether: Six-month put-call skew. (Skew.)

The turnaround validates the bullish breakout on ether's daily chart confirmed on Monday.

While the one-week, one- and three-month skews have retreated from February highs, they continue to show a preference for puts, meaning fears of a short-term pullback persist. Given the lingering geopolitical uncertainty and U.S. recession fears, that's hardly surprising.

The dollar value dedicated to ether options contracts has topped the $6 billion mark for the first time in more than a month. On Friday, ether options worth $2.28 billion are set to expire.

Ether-bitcoin volatility spread suggests a big move in ETH/BTC

The spread between the one-month implied volatility (IV) for ether (ETH) and bitcoin (BTC), a measure of expected relative price turbulence between the two, has turned negative for the first time since March 2021, per data provider Skew.

In other words, ether's implied volatility is trading at a discount to bitcoin for the first time in a year. Historically, the negative ether-bitcoin IV spread has marked the beginning of big rallies in the ether-bitcoin (ETH/BTC) ratio.

For instance, ETH/BTC rallied over 180% to 0.082 in the weeks following the implied volatility spread's negative turn in mid-March 2021. The ratio doubled to 0.040 in less than two months after the implied volatility spread dipped below zero in mid-May 2020.

Outsized gains in most alternative cryptocurrencies usually accompany a rally in the ether-bitcoin ratio. "The fundamentals for ETH are aligned for a move upwards, however a rally in ETH would also likely lead to an alt-wide rally across the board," Matthew Dibb, COO and co-founder of Stack Funds, told CoinDesk in a WhatsApp chat.

Ether-bitcoin one-month implied volatility spread. (Skew.)

ETH/BTC was trading near 0.07 at press time, according to charting platform TradingView.

"We are seeing some strength in ETH, particularly relative to other assets in the ecosystem. ETH/BTC is now trading at around 0.07 again and will soon me meeting some short-term technical resistance at 0.072,"Dibb added.

Mining Week explores the dynamic field of cryptocurrency mining, from proposals to modify Bitcoin's software to cut energy consumption to up-and-comer projects that claim to be greener alternatives; from energy producers mining coins to make extra money and reduce waste to neighbors complaining about noise and higher electricity rates. Read, watch and listen to the series, updated daily here.

Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.