Ether's Bearish Sentiment Intensifies

The cryptocurrency market is witnessing an intriguing trend as the U.S. presidential election draws near as decentralized exchanges traders seem more inclined to hedge against potential downside risks for ether (ETH)** than for bitcoin (BTC)**.

This sentiment remains pronounced even as Republican candidate Donald Trump gains traction in prediction markets over Democratic rival Kamala Harris.

At present, ether's 25-delta risk reversals for both short—and long-duration expiries register more negative numbers than those of bitcoin. This data, sourced from Amberdata and Deribit, signifies a more robust bearish outlook for ether, the native token of the Ethereum blockchain, which plays a dominant role in decentralized finance (DeFi).

Understanding Risk Reversals

Risk reversals are a critical measure in options trading. They indicate the premium required to hold a call option relative to a put option. Negative values suggest a bias towards put options, reflecting market expectations of a price decline in the asset underlying the options.

Traders use options to hedge against their spot or futures market positions. A bullish trader in the spot or futures market may purchase a put option when anticipating downside volatility.

Both bitcoin and ether traders are adopting this strategy, with ether traders showing a more pronounced inclination to mitigate potential losses.

"The skew in ETH open interest, with nearly 2.5 times more calls sold than bought, suggests that traders see the upside as limited for now," remarked Nick Forster, founder of Derive.

Limited Upside for Ether

In a curious twist, while BTC risk reversals turn positive for Nov. 8 and beyond, ethers exhibit a bullish trend in late December. This implies that traders expect an upside in BTC volatility following the election results on Nov. 8, whereas others are only anticipated to recover later.

On Derive, a dominant decentralized exchange, Ethereum call options exhibited a 2.5:1 sell-to-buy ratio in September. In contrast, bitcoin options displayed a more balanced flow. The heightened interest in writing (selling) ether calls indicates that traders foresee little upside volatility in the cryptocurrency.

Political Influence on Crypto Markets

Trump's lead in the prediction markets has soared to a two-month high of 55.8% on the Polymarket platform, outpacing Harris, who lags at 43.8%.

The prevailing narrative suggests that a Trump victory could positively impact BTC and DeFi, driven by his recent introduction of the DeFi protocol World Liberty Financial.

On Oct. 9, this protocol submitted a proposal on Aave to link the two projects. The proposal focuses on providing stablecoin liquidity for ETH and WBTC and expanding Aave's user base.

However, some analysts, including those from Standard Chartered, argue that a Trump win could benefit Ethereum rival Solana more, while Ethereum might thrive under Harris' presidency.