Risk Reversals Indicate Bearish Sentiment Toward Ether
Derivative traders on decentralized exchanges are showing a strong inclination to mitigate potential downside risks for ether compared to bitcoin. This trend is evident in the risk reversals data from Amberdata and Deribit, which indicate that traders see limited upside in ETH.
Bearish Sentiment Persists
The bearish sentiment toward ether (ETH) remains pronounced relative to bitcoin (BTC), despite the recent uptick in DeFi enthusiast Republican candidate Donald Trump’s lead over Democrat rival Kamala Harris in prediction markets tied to the outcome of the Nov. 5 U.S. presidential election.
Risk Reversals: A Sign of Bearish Sentiment
Risk reversals measure the premium required to hold a call option relative to a put. Negative values suggest a bias for put options, which reflect expectations of a price drop in the underlying asset. Traders often use options to hedge their spot/futures market exposure. Therefore, a trader with a bullish spot/futures bet may buy a put option when expecting downside volatility.
In this case, the data from Amberdata and Deribit shows that traders are more inclined to mitigate potential downside risks for ether than bitcoin. The risk reversal for Oct. 11 ether options is -7.3%, while bitcoin’s is -5.8%. A similar pattern is observed for expiries up to the end of October.
A Curious Pattern Emerges
A curious pattern has emerged: While BTC risk reversals are positive for Nov. 8 and beyond, ether’s don’t turn bullish until late December. In other words, traders expect upside volatility in BTC once the election results are out on Nov. 8. Ether isn’t expected to turn the corner until later.
DEX Traders See Limited Upside in ETH
On the dominant decentralized exchange (DEX) Deribit, Ethereum call options saw a 2.5:1 sell-to-buy ratio in September. The flow was much more balanced in bitcoin options. This relatively greater interest in writing (selling) ether calls means traders do not foresee a notable upside volatility in the cryptocurrency.
"The skew in ETH open interest, with nearly 2.5 times more calls sold than bought, suggests that traders see the upside as limited for now," said Nick Forster, founder of Deribit. "This divergence between the two assets will be key to watch as we get closer to election day."
Trump’s Lead Widens
Donald Trump’s odds of winning the election soared to a two-month high of 55.8% on prediction platform Polymarket, leaving Harris behind at 43.8%. The popular narrative is that a potential Trump win would be positive for both BTC and DeFi.
The perception likely stems from Trump’s decision to debut DeFi protocol World Liberty Financial in September. On Oct. 9, the protocol submitted a proposal on Aave to link the two projects, focused on providing stablecoin liquidity for ETH and WBTC and growing Aave’s user base.
A Potential Trump Victory: What It Means for Ethereum
Still, some observers, including Standard Chartered, say a Trump victory would be better for Ethereum rival Solana, and Ethereum will prosper more under Harris’ presidency. The outcome of the election remains uncertain, and traders will continue to monitor the situation closely.
Conclusion
The data from Amberdata and Deribit suggests that traders are more inclined to mitigate potential downside risks for ether than bitcoin. This trend is evident in the risk reversals data, which indicate a strong bearish sentiment toward ETH. While the outcome of the election remains uncertain, it is clear that traders see limited upside in ETH.
Key Takeaways
- Traders are more inclined to mitigate potential downside risks for ether than bitcoin
- Risk reversals data from Amberdata and Deribit indicate a strong bearish sentiment toward ETH
- DEX traders see limited upside in ETH
- Trump’s lead widens in prediction markets, with some observers predicting a positive outcome for both BTC and DeFi
Recommendations
- Traders should continue to monitor the situation closely and adjust their strategies accordingly
- The outcome of the election remains uncertain, and traders should be prepared for any eventuality
- A potential Trump victory could have significant implications for Ethereum, with some observers predicting a positive outcome.
