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Sunday, December 4, 2022

Why The Merge May Not Save Ethereum Price From ‘Septembear’

Ether (ETH), the native currency of Ethereum, is not immune to downside risk in September despite having recovered around 90% from its June bottom of about $880.

The Merge, a scheduled for September 15 technological update that will turn Ethereum into a proof-of-stake (PoS) system, is largely responsible for the token’s upward movement.

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Ether currently trades roughly 70% behind its all-time high of $4,950 from November 2021, after recording strong gains between June and September. Therefore, there is still a chance that it will decline.

Here are three negative market signs for Ethereum that demonstrate why more decline is expected.

Sell The Ethereum Merge News

According to Deribit statistics gathered by Glassnode, Ethereum options traders predict that ahead of the Merge, Ether’s price will rise from its present $1,540 level to $2,200. Some even predict a $5,000 price, but since the transition to PoS, interest appears to have waned.

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A so-called “options implied volatility smile” statistic suggests that traders following the Merge are seeking downside protection (OIVS).

OIVS uses several strikes for the particular expiration date to demonstrate the implied volatilities of the options. As a result, implied volatility is often higher in contracts out of capital and vice versa.

For instance, traders may examine the relative cost of options and determine what kinds of tail risks the market is pricing in by examining the smile’s steepness and shape in the Ethereum’s Sept. 30 options expiry chart below.

As a result, the upward slope of the volatility smile indicates that there is significant buy-side demand for September expiration ETH call options and that traders are ready to pay a premium for a long exposure.

As shown in the OIVS chart below, which also shows Call and Put open interests at various strike rates, “Post Merge, the left tail is pricing in significantly higher implied volatility, indicating traders are paying a premium for’sell-the-news’ put-option protection post-Merge,” according to Glassnode analysts.

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