Ether Options Market Shows Bias for Price Weakness Over Next 6 Months

Ethereum's native token Ether (ETH) fell to a six-week low on Tuesday, with traders in the options market betting on price weakness over the next six months.

The second-largest cryptocurrency by market value fell to $1,815 during Asian hours, reaching the lowest since June 21, according to CoinDesk data.

Ether's six-month call-put skew, which gauges the spread between implied volatilities for call and put options expiring in 180 days, slipped to -0.91, the lowest since June 15, according to crypto data provider Amberdata.

The negative value shows bias for put options, which give the purchaser the right but not the obligation to sell the underlying asset at a predetermined price on or before a specific date. A put buyer is implicitly bearish on the market, while a call buyer is bullish.

The bearish skew comes as U.S. Securities and Exchange Commission (SEC) looks to categorize most cryptocurrencies except bitcoin as securities, subjecting them to stringent oversight.

Per Markus Thielen, head of research and strategy at crypto services provider Matrixport, ether's price appears vastly overvalued compared to its dwindling revenues.

According to data tracked by Matrixport, Ethereum's average monthly revenue now stands at $178 million, or 364% lower than the $826 million figure seen during the bull market days of 2021. Further, staking or locking coins in the Ethereum network in return for rewards is less rewarding than a few months ago. That's because the average staking yield of 4.98% is now less than the benchmark U.S. interest rate of 5.25%-5.5%.

"Based on one quantitative approach, Ether's fair value appears closer to $1,000 or 46% lower than current prices ($1,856). While we do not necessarily predict such a decline, there is a zero-cost way to position for this decline (zero-cost, but not zero-risk)," Thielen wrote in an email.

The so-called zero-risk strategy involves buying a December expiry at-the-money (ATM) ether put and financing it by selling an ATM bitcoin December expiry call. Options closer to the going market rate of the underlying asset are said to be at-the-money.

"An at-the-money put for the December 2023 expiry put appears to trade at the same implied volatility for ether as for bitcoin (both near 42%), while historically, ether's implied vol has only on brief occasions dropped below bitcoin’s," Thielen noted. "Buying a put on ether and financing it by selling one on bitcoin appears to be a zero-cost (but not zero-risk) strategy. It makes sense when Ether appears overvalued based on revenue-generating capabilities."