Ether derivatives smash milestones left and right as The Merge looms

Trading in ether derivatives soared in August as traders bet on the Ethereum blockchain’s impending move from proof of work to proof of stake – a transition dubbed The Merge.

Ethereum’s big move to proof of stake was confirmed in August, with the final upgrades (Bellatrix and Paris) set for Sept. 6 and Sept. 10-20. The long-anticipated upgrade spurred derivatives traders as ether options and futures soared throughout the month. The Block identified in July that ether derivatives trading was surging ahead of the Merge. 

Here’s a look at two of the most interesting milestones from our data dashboard. 

Ether options open interest 

Open interest in ether options surpassed bitcoin open interest for the first time in August,  as ether hurtled past $8 billion to an all-time high.

Hedge fund LedgePrime linked the surge to the emergence of new, more complex strategies, among traders positioning themselves ahead of Ethereum’s transition to proof of stake.

The long call butterfly – at that point the most traded structure for ether over the past month – had moved to the second position, with the bull call spread taking the lead at a volume of 160,000, LedgerPrime wrote in a Telegram message on Aug. 13.

A butterfly spread is an options strategy constructed using three different strikes within a single expiration period, made up of all calls or all puts. The distance between the strikes must be the same. 

These trades “show directional bets from institutions, as well as retail if we consider Deribit’s volume,” and “at the very least short-term directional bets,” LedgerPrime’s Laura Vidiella told The Block at the time. 

By the end of August, aggregated open interest of ether options reached $6.8 billion, which represents a continued month-over-month increase of 16.7%. Monthly volumes of ether options also increased, by 6.1%.

Ether futures eclipses bitcoin

For the first time the volume of ether futures was larger than bitcoin futures, during August.

The volume of ether futures exceeded that of bitcoin futures by 1.11 times in August, according to The Block Research. The Block’s Lars Hoffman attributed this to the carry play around the imminent Ethereum Merge.

Furthermore, ether futures crossed $1 trillion for the first time since May 2021 during August, clocking in at $1.64 trillion.

Trading volumes for the second-largest cryptocurrency by market cap were $1.05 trillion in August, up from $934.9 billion in July.

Meanwhile, the price of ether whipsawed throughout the month. Ether gained 18% over one seven-day period, before forfeiting all of those gains just a week later. However, the cryptocurrency wasn’t alone as most major cryptocurrencies fluctuated throughout the month – broadly in line with wider financial markets. 

Bitcoin lost 12.98%, according to The Block’s data dashboard, as the leading cryptocurrency by market cap also saw its dominance plummet during the month. 

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