Cryptocurrencies are experiencing a rebound following midweek setbacks, with Ethereum gaining momentum. Over the weekend, it erased previous losses, rising from near $3,600 to its highest level since December last year.
The key question remains whether Ethereum will breach the $4,000 mark, a level it last cleanly surpassed in late 2021, peaking above $4,800 before a decline. During that period, Bitcoin also reached record highs above $60,000 but later fell to below $20,000.
Ethereum struggled with the $4,000 level last year but is now poised for another attempt. Breaking through could lead to further gains, but failure might indicate a peak for the year.
Globally, the summer trend of cryptocurrencies and collectibles remains strong.
Based on what Low has outlined, we see the setup around $4,000 as a prime opportunity for options traders. Recent data shows a significant buildup in call option open interest, with over $3 billion concentrated at strikes between $4,000 and $5,000 for the end of June, indicating a strong bullish bias in the derivatives market. We believe positioning for a breakout is the primary play.
The fundamental picture has changed dramatically since the last test of this price level, largely due to the SEC’s sudden approval of 19b-4 filings for spot Ether ETFs. This is a powerful catalyst that didn’t exist before, making a sustained break more likely. Historically, assets see significant inflows and price appreciation after such products begin trading, as Bitcoin did following its ETF launch in January, which saw it rally over 60% in the following two months.
For traders anticipating a breakout, buying call options with a strike price just above $4,000 offers a leveraged bet on this upward momentum. For those who remain cautious about a potential rejection, purchasing put options can serve as a hedge against a sharp decline. According to data from Deribit, the 25-delta skew has remained positive, showing that demand for bullish calls still outweighs that for bearish puts.
We also see value in strategies that profit from increased volatility, regardless of the direction. A long strangle, which involves buying an out-of-the-money call and an out-of-the-money put, could be effective as we approach the official launch of the spot ETFs. This is because the market is pricing in a significant move, and implied volatility, while elevated, may still be underestimating the impact of live ETF trading.
Ultimately, the key is to watch for the S-1 registration statements to be finalized, as this is the last step before the new funds can begin trading. We think the market is underreacting to the scale of potential inflows, which analysts at Standard Chartered have estimated could be between $15 billion and $45 billion in the first year alone. This event will likely define the direction for the rest of the quarter.
