Crypto prices rallied this week in line with broader financial markets and following positive inflation news in the US.

Ether was the big winner this week as it gained more than 18% and at the time of writing was trading at $2,009, while bitcoin was up 7.7% at $24,758 according to CoinGecko.

This week's price moves saw bitcoin cross the $25,000 mark for the first time since June, while ether was similarly maintaining levels it hadn't consistently held since the beginning of the summer months.

Here’s what key players had to say about this week's price action and what to watch for next week:

Merge news dominating ether price moves

QCP Capital attributed the rally in markets to strong economic data, noting jobs reports in the US on August 5 and lower inflation on Wednesday as two keys. US inflation remaining unchanged month-on-month was “critical,” according to the firm, as it confirmed the “peak inflation” narrative.

According to the market maker, this coincided with bullish narratives around ether and the forthcoming Ethereum merge, which now has a tentative date. Indeed, SEBA’s Urs Bernegger told The Block that ether saw a more robust surge in price than bitcoin as investor confidence increased following the news.

Still, concerns over a hard fork in the network remain as some Ethereum miners suggest they will persist with a proof-of-work network.

JPMorgan wrote in its weekly fund flows report on Wednesday that Ethereum miners are facing an abrupt change as the merge looms large.

“As the blockchain shifts from Proof-of-Work, which involves miners solving complex cryptographic puzzles that require extensive computational power, to Proof-of-Stake, where users instead lock up or stake tokens to become validators in the network, the role of miners will effectively end when the transition takes place.”

JPMorgan, Flows & Liquidity Research Note

The investment bank went on to suggest that Ethereum Classic miners may be the main beneficiaries of Ethereum’s merge as they “would be able to take advantage of second-hand GPUs and ASIC mining rigs sold by ETH miners that instead chose to become validators on Ethereum 2.0.”

Analysts at the Wall Street firm concluded that there are some signs of a shift to Ethereum Classic already taking place, based on a substantial rise in the hashrate since mid-July. The note said that Ethereum Classic may be seen as a hedge against any potential disruptions in the Ethereum blockchain during the shift.

Beyond ether, SEBA's Bernegger said "the longer-term outlook for Bitcoin remains unclear, with flows to risk assets at risk from further rate hikes from the Fed and other central banks due to persistent inflation. Bear markets typically last years, rather than months, and rallies can be a common feature. As such, it’s likely that we will see further volatility before Bitcoin finds a bottom in this period."

Short-term directional bets dominate ether open interest

Ether options open interest recently surpassed bitcoin open interest for the first time and has hurtled past $8 billion to an all-time high, according to The Block Research’s data dashboard.

Ethereum's move to proof-of-stake from proof-of-work has a tentative date — despite some miner rebellion — and traders are increasingly speculating on the merge. The aggregate open interest — the value of all outstanding contracts that have yet to settle — of ether options across top-tier exchanges has surpassed $8 billion, up from $7 billion on July 29.

BlockFi’s global head of trading, Joe Hickey, spoke to The Block on Friday about the move, noting that we are seeing two bullish plays in the market at present:

“The first being an ETH post-merge leveraged play to the upside using calls, butterfly spreads and call spreads. The second being an ETH fork optionality play by arbitrageurs trading pairs of spot, perpetual and quarterly futures,” he said

LedgerPrime wrote in a Telegram message to counter-parties: "The Long Call Butterfly, which has been the most traded structure for ETH over the last month, has moved this week to the second position, with the Bull Call Spread taking the lead at a volume of 160K."

A butterfly spread is an options strategy constructed using three different strikes within a single expiration period, made up of all calls, or all puts. The distance between the strikes must be the same.

The Block spoke about the recent activity in ether options with LedgerPrime's Laura Vidiella, who said these trades "show directional bets from institutions, as well as retail if we consider Deribit’s volume," and "at the very least short-term directional bets."

According to QCP Capital's market update on Saturday, ether options open interest eclipsing bitcoin is “unprecedented.”

Earnings watch

A flurry of crypto-related earnings reports continued apace as bitcoin mining firms logged results and Coinbase shared its earnings on Tuesday.

Coinbase missed on revenue estimates and cut the top end of its MTU (monthly transacting users) forecast as it saw an underperformance in Q3. Shares in the crypto exchange fell from $97.84 on Monday to $90.49 at the close on Friday.

Elsewhere, Core Scientific and Hut 8 revealed earnings, with more mining firms set to announce in the week ahead — keep an eye out for Bitfarms on Monday and Canaan on Thursday.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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