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Volume of ETH options rises to highest level since May ahead of Shapella update

Crypto Infrastructure • March 30, 2023, 6:00PM EDT

Quick Take

  • Monthly options volume for ETH reached the highest point since May this month, ahead of Ethereum’s Shapella update scheduled for April 12, according to data from The Block.
  • Open interest for Ethereum options on CME have reached all-time highs, while monthly volume has lagged behind, as traders build up positions before the update.

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Traders are placing their bets on Ethereum, as the monthly volume of ETH futures in March reached its highest point since May 2022, according to data from The Block.

The spike is being driven, in part, in anticipation of Ethereum’s  Shanghai-Capella upgrade, or Shapella, which is scheduled for April 12 and will enable staked ether withdrawals for the first time, among other technical upgrades.

The ability to withdraw staked ether is significant because it provides validators with easier access to their funds, which is  likely to cause an increase in liquidity while boosting the number of validators on the network.

Following “The Merge,” when Ethereum switched from a proof-of-work to a proof-of-stake network, the minimum amount of ETH required to participate in staking rewards as a validator was 32 ETH, or close to $128,000 at that time. Because funds were “locked up,” validators were not able to use those funds for other purposes. Still, the number of validators on the Ethereum network currently is about 560,000.

Enabling withdrawals of staked ether will make it easier for individuals and groups to participate in the network. With a more clear path to withdrawal, it is likely that more people will be willing to participate as validators, thus increasing the security of the network.

Ahead of the upgrade, traders are placing their bets on the future price of Ethereum, with open interest reaching all-time highs for ether options on CME this month. The volume of completed trades for Ethereum options lagged behind, signaling that traders are accumulating contracts in anticipation of the update, betting on which direction the price will swing.

“We have seen increased buying of ETH calls this week,” said Joe Kruy, head of institutional coverage for America’s at Paradigm, a liquidity provider for crypto derivatives. “However, I do not view most of these upside flows as bullish,” he said.

Kruy noted that short ETH and long BTC has been a popular volatility spread trade this year. “I believe some of this call buying is closing out of short ETH positions to monetize this spread,” he said, “rather than adding risk ahead of the event.”

“We have seen a bit of vol buying ahead of the event as a hedge,” he said, “just not much in comparison to overall BTC flows.”