Ethereum Put Options Demand Signals Risk for ETH Price

• The surge in Ethereum put options demand suggests concern among traders about a potential drop in ETH price.
• ETH is strongly trading above the $4,000 resistance.

While Ethereum’s highly anticipated Dencun update looms, ETH’s options market is sending mixed signals, raising concerns among traders. 

According to market analysts at QCP Capital, ETH’s risk reversals have turned negative for near-term expiries, indicating a surge in demand for put options. This shift suggests a growing grasp of a potential downturn in ETH prices, with speculators possibly hedging against risks in alternative cryptocurrencies. Despite this caution, QCP Capital believes any price dip will likely be met with aggressive buying activity. 

A risk reversal measures the difference in implied volatility between call options and put options, reflecting the market’s perception of where the risk lies. A negative risk reversal indicates that the market sees a higher risk of the spot price being lower.

Will ETH Price Face Correction?

QCP Capital also highlights a slight drop in ETH spot-forward spreads, which differs from the higher spreads seen in Bitcoin markets. This difference implies that if Ethereum’s spot prices sharply decrease, it could lead to tighter forward spreads as leveraged long positions are closed out.

Despite this, the world’s second-largest cryptocurrency has been holding strongly above the $4,000 resistance and is poised for a potential surge toward a new all-time high, reaching as high as $5,000. At the time of writing, Ethereum traded at $4,043 with a market cap of $485 billion. 

Moreover, Ethereum’s impending Dencun update, slated for March 13th, shows a significant evolution in the network’s infrastructure, promising reduced costs, particularly within Layer 2 networks.