Derivatives data hint Ethereum rally may abruptly end in a ‘sell-the-news’ event

Ethereum (ETH) remains the center of attraction for the cryptocurrency sector ahead of the Merge upgrade as a section of the market bets on the asset to sustain a bullish momentum after the update. However, it appears some inventors are preparing for a possible price correction post-Merge. 

In particular, derivatives markets indicate that traders are going for call options projecting a rally in advance before the September upgrade, while futures and options indicate investors expect the value to drop after in a “sell-the-news” scenario, Bloomberg reported on August 12. 

Most specifically, the investors expect Ethereum to rise to about $2,200 from the $1,880 value recorded by press time. 

Anticipation for a price pullback 

Interestingly, after the Merge, which has been revised to around September 15, there is a trend for demand for downside protection. It can therefore be concluded that some investors are speculating a downward momentum post-Merge. 

“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,” Glassnode analysts said.

It is worth noting that there has been a level of uncertainty regarding Ethereum’s price action after the Merge, although the crypto has rallied since the initial announcement. Notably, as reported by Finbold, Ethereum co-founder Vitalik Buterin confirmed that the date had been revised to around September 15. 

In this line, a crypto trading expert by the Twitter username of Rager believes that due to the revision of the Merge, Ethereum might record some pullback before climbing. This is after speculation emerged that there may be a week of error surrounding the exact target date.

Additionally, the anticipation around the software upgrade had resulted in Ethereum’s options open interest hitting a high $6.6 billion in return, flipping Bitcoin (BTC) for the first time. 

Other effects of the Merge 

Elsewhere, Marc Zeller, head of developer relations at Aave, warned about some of the potential overlooked effects of the Merge. According to Zeller:

“The second the Merge happens, there will be front-running bots that will instantly find every block of POW to empty liquidity pools of Uniswap and others on EthereumPOW,” he said. “The goal is to sell as many tokens as they can — to get as many EthPOW — the only asset on EthereumPOW chain that may have some kind of value.”

It is worth noting that not all Ethereum community members are in support of the upgrade. There are speculations that disgruntled developers might fork Ethereum to retain the Proof-of-Work (PoW) status.

However, Buterin has exuded confidence that a fork will not significantly impact Ethereum while calling on miners to migrate to other Proof-of-Work convenient and friendly assets, Ethereum Classic (ETC).

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