The open interest put/call ratio of Ethereum options has surpassed that of Bitcoin's for the first time in six months. This suggests that market sentiment is bearish for Ethereum which has had a nice bounce from $2,500 to over $3,500 and could be set for a retrace while BTC turns positive YTD.
What Is The Put/Call Ratio?
The put/call ratio represents a proportion between all the put options and all the call options over a determined time period on an asset.
A put option is a contract that gives the holder the right, but not the obligation, to sell an underlying asset at a specified price within a specific time period. On the other hand, a call option is a contract that gives the option holder the right to buy an underlying asset at a specified price within a specific time period.
Comparing put options and call options, the put/call ratio can be used as a technical indicator to demonstrate investor sentiment. If the ratio is greater than 0.7 or exceeds 1, then the market sentiment is bearish as traders are buying more puts than calls. On the contrary, a low ratio means the market is bullish.
Put/Call Ratio Suggests Ethereum Is Set For A Retrace
On Mar. 25, the open interest put/call ratio of Ethereum options eclipsed that of Bitcoin options. Prior to that, Bitcoin had a higher put/call ratio since early October 2021. And before that, the two had a very similar put/call ratio and there was no major breakout for ETH’s put/call ratio, according to data by The Block.
After exceeding Bitcoin’s put/call ratio, the put/call ratio of Ethereum hit a high of 0.57 on Mar. 31. Notably, ETH’s ratio has since started to decline and sets at around 0.53 as of now. The last time Ethereum futures had a noticeable, sustained higher open interest put/call ratio was in August.
This increase in the put/call ratio for ETH suggests a more bearish sentiment, meaning that traders expect a retrace in the near future. Since the Ethereum price has had sustained growth over the past couple of weeks, a correction is natural.
Coming into April, the put/call ratio of Ethereum had been declining. Generally, a lower put/call ratio suggests that the market is bullish. Therefore, if ETH’s ratio resumes its downtrend, it would indicate that traders are becoming more optimistic. Likewise, BTC’s put/call ratio has been falling since February which makes sense given the recent price increase.
Meanwhile, Bitcoin is up 0.72% year to date (YTD) while Ethereum is in the red, down by more than 4.6% YTD, implying that the flagship cryptocurrency has outperformed Ethereum so far this year. Arguably, recent major BTC acquisitions by Microstrategy (NASDAQ:MSTR) and Terra have helped the Bitcoin price gain momentum.
Crypto Market To Turn Bullish As Key Events Approach
It is worth noting that Bitcoin, Ethereum, and the larger crypto market could soon turn bullish as key events approach. For instance, starting Apr. 6, the largest conference focused on Bitcoin will be taking place in the Miami Beach Convention Center and surrounding areas.
Historically, the event has been filled with major announcements from top executives related to Bitcoin. For instance, last year, El Salvador President Nayib Bukele made the big revelation about his intentions to make BTC legal tender in the event — and such announcements could dramatically improve the sentiment around a cryptocurrency.
Moreover, Ethereum’s much-anticipated transition to a PoS bacon chain, which is probably the biggest upgrade in the history of crypto, is slated to go live in the second quarter of the year. This is huge for Ethereum as its issuance rate is expected to drop by more than 90% and its electricity usage would also drop by more than 99%.