Structural FlowsIt will remove the Proof-of-Work ETH emissions on each block . At present, these emissions total ~13,000 ETH per day. The merge is expected to replace these ~13,000 daily ETH emissions to miners with a much smaller emission of approximately 1,000 to 2,000 ETH per day that will instead go to network validators . These emissions will occur at the same rate regardless of the price of ETH and the Ethereum network’s usage.
On the other side of these directional futures flows are the market makers. They run delta-neutral portfolios, meaning they take no outright exposure to ETH. Therefore, as they buy futures from the sellers, whose motivations I described above, they must sell ETH physically in the spot market to hedge themselves. This adds sell pressure to the spot or cash market.
I believe a successful merge will lead to buying pressure at the margin, flipping the market makers’ futures positioning in the process. They will go from long futures / short spot to flat or short futures / long spot. The spot they are short must be covered , and if they get taken net short futures, they must now go into the market and purchase additional spot. The unwind of the derivatives flows that lead to backwardation pre-merge will lead to contango post-merge.
Similar to the futures term structure, the Dec calls trade cheaper in terms of implied vol than the Sept calls, especially on the wings. Another reason why I prefer the Dec calls is that I don’t have to be as precise with the timing of the merge. While the developers told us September 15 is the date, tech delivery dates are known to slip. I don’t want to worry about being a few weeks off on the merge completion date.