Goldman Offers ETH Option Trading as Client Interest Climbs

Key Points

• ETH/USD has fallen into the $3300s amid a broad downturn in crypto markets after hawkish Fed rhetoric.
• But Ethereum remains elevated versus mid-March lows, underpinned by optimism ahead of the highly anticipated “Merge” from PoW to PoS.
• Goldman Sachs will offer OTC options trading for Ethereum amid growing client interest, a boost to the “institutional adoption” narrative.

Ethereum (ETH/USD) has pulled back sharply from earlier weekly highs to the north of its 200-Day Moving Average around $3500 in tandem with a broad downturn in sentiment across the crypto market. The cryptocurrency now trades in the $3300s, down more than 5.0% on the week.

Traders are citing recent hawkish rhetoric from US Federal Reserve policymakers ahead of the release of the minutes of the central bank’s latest meeting later on Wednesday, which triggered a sharp move higher in US government bond yields, as weighing on crypto.

When Fed policymakers indicate that they want to raise interest rates/tighten monetary policy more aggressively, and when this pushes up bond yields, the “opportunity cost” of holding non-yielding assets (like crypto) is higher.

But ETH/USD is still trading at elevated levels versus its mid-March lows, when the Ethereum blockchain passed its last major hurdle before a much-anticipated software update called “the Merge”.

Since 14 March, Ethereum has rallied over 30%, besting Bitcoin’s 20% gain over the same time period. “The Merge”, which developers predict could proceed by the end of Q2 2022, will see the Ethereum blockchain transition from the energy-intensive Proof-of-Work (PoW) to comparatively greener/more efficient Proof-of-Stake (PoS) model.

Goldman Sachs Announces Plans to Offer OTC Ethereum Option Trading

Ahead of Ethereum’s transition to Proof-of-Stake, which is widely viewed as the blockchain’s most important technical update since its creation in 2015, institutions are taking note.

In a client webinar on Tuesday, the global head of crypto trading at Goldman Sachs Andrei Kazantsev said that, amid growing interest from clients in Ethereum, Goldman Sachs now plans to offer over-the-counter (OTC) options trading.

One associate on Goldman’s digital-assets team noted that client conversations have increasingly shifted towards Ethereum, which many now view as “more of an investable asset”.

Ethereum Outlook Positive Pre-Merge

While the backdrop of rising interest rates and an increasingly hawkish sounding Fed presents an ongoing source of downside risk/uncertainty to crypto markets, the current backdrop of high inflation has acted as a tailwind for major crypto-currencies as of late.

Ethereum doesn’t have an explicit limit on its total supply like Bitcoin, many still view the cryptocurrency as a good hedge against inflation.

This, plus the above-noted evidence to support the “institutional adoption” narrative and the likelihood that, as the much-anticipated Ethereum merge nears, retail trader hype about the cryptocurrency will surge, suggests a still healthy near-term outlook.

Dips towards the 21DMA in the $3200 area may continue to look attractive, so long as there aren’t any further big pushes higher in US bond yields as a result of more hawkish Fed surprises.

A major test will be whether ETH/USD can break sustainably above its 200DMA near $3500 and key resistance just above it in the $3600 area. From a technical standpoint, this is the final major technical hurdle standing in the way of Ethereum returning back to last November’s record highs.

In a recently distributed research note by Goldman Sachs, the bank predicted ETH/USD could end the year as high as $8000.