The crypto world has been abuzz about Ethereum's upcoming software upgrade. Yet there's a divide in terms of how to position for the so-called Merge: retail investors have been selling the underlying token, while institutions continue to buy.

The trading desk at Genesis saw “some fresh bullish ETH views expressed” with investors buying calls and selling puts. Analysts at Enigma say that traders are likely expecting a retracement following Ether's big rally since June. Trading firm B2C2 is seeing a lot of Ether buying. And yet BlockFi's customers have been selling in recent days.

“Retail investors are getting a little nervous about another risk-off period for the markets,” given the federal reserve's hawkish stance, said Matt Maley, chief market strategist at Miller Tabak & Co. “Therefore, they're taking some chips off the table. However, institutional investors, who are more sophisticated, are taking advantage of the dip to add Ether.”

The two cryptos have been volatile of late

Ethereum's upgrade has been long-awaited and news around it has been welcomed by investors, who have since the start of July pushed its token's price up by roughly 50%. The blockchain is set to facilitate a move from the current system of using miners to a more energy-efficient one using staked coins. The switch to this so-called proof-of-stake system from proof-of-work is expected to happen soon after being kicked down the road for several years.

Ethereum recently completed its last test before the upgrade, and developers said the main event should take place next month.

Speculators had been positioning for the token to continue its run, though many are also betting that once the upgrade actually happens, Ether could plunge as part of a “sell-the-news”-type of event. And the token has already given back some of its recent gains, dropping roughly 8% over the seven days through Friday.

“The short-term rally on both BTC and ETH looked weak,” and “we were likely heading toward an inflection point,” wrote strategists at Securitize Capital. “This does seem likely to have been it.”

Both stocks and cryptocurrencies have been choppy of late following a red-hot rally over the summer, wavering as the Fed promises to be aggressive with its interest-rate hikes. Traders are likely expecting Ether and Bitcoin to retrace some of its gains, “which, if true, will make $ETHUSD the target of bears,” Eliott Attlan at Enigma Research wrote in a note.

But BlockFi's retail client have already been offloading. They were net sellers of Ether the weekend prior to the Fed's Jackson Hole meeting on Friday.

The typical trade recently has been to buy spot Ether and sell futures against it, according to a note from Cumberland on the Merge. Such a trade allows Ether holders to receive a token that will be forked off the network known as ETH PoW without downside price risk. Still, thanks to uncertainties around the upgrade, Ether holders have been selling September and December futures contracts.

Over at B2C2, there's been more buying than selling of Ether. The buy/sell ratio has been 55% to the buy side, with particular interest coming from funds, which is the largest cohort by volume and where the firm saw 62% buyers recently. Normally, that would be closer to 50% on any given week, “so this is sizable shift,” said Edmond Goh, head of trading at B2C2. “All eyes continue to track the Merge.”

Meanwhile, questions around the Ether chain-split are starting to accelerate, said Stephane Ouellette, chief executive of FRNT Financial Inc. His clients are looking to assess the value of a potential new proof-of-work chain emerging following the upgrade. “There are a growing number of arb strategies emerging around the complex and clients are also trying to decide if there are outright value plays in both the PoS and PoW chains around the merge event,” he said.

Still, though some are selling Ether right now, sentiment hasn't yet soured and the Merge is still being viewed positively. “That may change though, you're starting to see a lot more philosophical debate of the value of PoW vs. PoS systems as the date approaches,” he added.