Ethereum Futures’ Open Interest Surges to $7B as Investors Bet on The Merge

Ethereum’s much-anticipated “Merge” upgrade is creeping closer to the existence, and hedge funds are ostensibly positioning themselves. The second-largest cryptocurrency has seen a spike in its derivatives activity, with the total number of outstanding derivative contracts exceeding the $7 billion mark over the weekend. 

Hedge Funds Bet on the Upcoming Merge Upgrade

As Ethereum is moving closer toward its biggest upgrade in history, hedge funds, and other major investors are trying to take a stance — i.e., instead of waiting on the corner, options traders are betting on how the price will react. This is evident from the rising Ether-based derivatives volume. 

According to data by The Block, aggregated open interest in Ethereum options across major exchanges hit $7.58 billion on July 30. Considering the aggregate open interest of ether futures stood at $2.74 billion on July 2, the figure shows a rise of more than 150% in less than a month. 

Open interest refers to the value of all outstanding contracts that have not been settled yet. In other words, open interest indicates the number of contracts that are held by traders and investors in active positions, ready to be traded. It is used as an indicator to determine market sentiment and the strength behind price trends.

Genesis Global Trading’s head of derivatives Joshua Lim believes that the surge in Ethereum derivatives volume is related to macro hedge funds positioning themselves ahead of the much-anticipated Ethereum Merge. Lim said:

“A more recent phenomenon has been the popularity of low-premium options structures in ETH from macro-discretionary hedge funds positioning for the merge. A common structure might be a call butterfly that pays off if ETH/USD finishes in December 2022 around $3000 spot price. These longer maturity, multi-leg structures are inflating the open interest in ETH options.”

It is worth noting that aggregate open interest across Ethereum options is currently larger than that of the Bitcoin options market, with open interest in the latter asset standing at just above $5 billion. Considering that the Bitcoin derivatives market has historically exceeded Ethereum’s by a wide margin, it suggests that the second-largest crypto is currently in the spotlight. 

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Ethereum’s Price Rises 55% in a Month as Merge Approaches

Ethereum has seen the price of its native token pick up in preparation for the Merge. The token is currently trading around $1,650, down by more than 3% over the past 24 hours. However, Ether is up by 23% over the past 14 days and by around 55% over the past month. 

Meanwhile, Bitcoin is trading at $23,000, down by 3% over the past 24 hours. In comparison, Ethereum, which has rallied by about 90% from the June low point, has actually outperformed Bitcoin which has gained 30% from June lows and is currently up by around 19% over the past month.

The merge is Ethereum’s long-awaited upgrade that will complete Ethereum’s transition from a proof-of-work (PoW) mechanism to a proof-of-stake system. The upgrade, expected to take place in September, would remove the need for miners, making the network over 99% more energy efficient.

Another important thing about the Merge is its impact on the Ethereum supply. Experts believe Ethereum could become a truly deflationary coin after the Merge, burning more coins than minting new ones. 

What is your ETH price target after the Merge? Let us know in the comments below.