Ethereum’s cryptocurrency has shot up, almost doubling in price in one month and piercing through a record $4,000 on Monday. But some traders are preparing for a pull-back.
Short interest is at the highest since the depths of the bear market, while options traders are buying contracts to protect against a drop. ETH has been hovering around $4,000 after breaking that mark.
The ETH bull market has been raging for 14 months with the cryptocurrency becoming almost 36 times more valuable. With the digital asset already surpassing the expectations of even the most bullish bulls, traders are speculating on what this cycle’s high will be. Some like Initialized Capital’s Garry Tan setting their sights on $10k. But anyone who has been long enough in crypto knows bull runs also come with corrections, and some are placing their bets accordingly.
ETH short positions are piling up to the highest since February 2019 on Bitfinex.
Open interest on Ether options is at an all-time-high of $6.98B according to bybt.com. For contrast, Bitcoin’s open interest stands at $11.14B, 21.7% off its all-time high on March 24. Presumably Ether’s rocketship price action has attracted option buyers to the smart contract platform’s currency.
ETH’s put/call ratio is at 1.46 for May 14 according to option market analytics provider CoinOptionsTrack. As .7 is generally accepted as a neutral ratio for equities, by that metric option buyers are betting heavily against ETH sustaining its highs come Friday.
Additionally, the max pain point for this Friday, the price at which option holders will sustain the most losses upon option expiry, is at $3150. Max pain theory says that the stop price will gravitate towards the max pain price on the day of options expiry as that’s the price at which option sellers, usually large institutions more capable of moving the market, stand to be most
“It’s extremely rare to see that many weekly green candles in a row without some sort of correction, and coupled with ATH price we’re seeing ATH euphoria,” said Jordan Spence, chief marketing officer at crypto wallet MyCrypto.
Looking to next Friday, May 21, bearish sentiment is apparently even higher with the put/call ratio at 2.56. Though at $3650 the max pain price will also be higher, meaning the price may theoretically gravitate towards that relatively higher point in order to push the largest amount of puts possible out of the money.
At .98 The put/call ratio is at its most bullish for May 28, though the max pain point of $3,000 for the last Friday of the month, which tends to attract the most open interest, may make short-term bulls flinch.
Qiao Wang, of accelerator DeFi Alliance, doesn’t see reason to worry yet however, saying he thinks the ETH market is healthy, citing “clear spot bidding by institutions,” as a primary reason.