Bears are expected to make a profit of $215 million during November’s Ether options expiry. This could put pressure on ETH’s price near a critical resistance level.
It is unlikely that the price of ether will increase in the near future, regardless of whether you are looking at the long-term or weekly time frame. Despite the significant negative performance year-to-date, ETH prices have been pressured by a descending channel which offers resistance at $1,200.
The continued lack of clarity around regulations is still having a negative impact on the sector. For example, the digital bank Starling announced on Nov. 22 that it would no longer allow customers to send or receive money from digital asset exchanges or merchants. The bank described cryptocurrencies as being highly risky and heavily used for criminal purposes.
The AAVE decentralized finance (DeFi) platform was hit with a short-seller attack on Nov. 22, which aimed to profit from loans that were not adequately collateralize. This is yet another worrisome development for the Ethereum ecosystem.
This is not the first time an exploit like this has happened.
A similar event occurred on the Mango Markets DeFi application in October. The recent attack on the MakerDAO system has demonstrated serious vulnerabilities in many popular decentralized lending platforms.
This is not the first time an exploit like this has happened. A similar event occurred on the Mango Markets DeFi application in October. The recent attack on the MakerDAO system has demonstrated serious vulnerabilities in many popular decentralized lending platforms.
The cryptocurrency lender Hodlnaut is reportedly being investigated by the police for allegedly cheating and defrauding customers. The issues began on August 8 after the lending firm cited a liquidity crisis and suspended withdrawals from the platform.
Lastly, on Nov. 22, United States senator Elizabeth Warren argued that the FTX exchange’s problems are similar to those of subprime mortgages in 2008 and penny stocks used in pump-and-dump schemes. Warren said that the recent collapse of FTX should serve as a reminder to regulators to enforce laws more strictly on the cryptocurrency industry.
The $1.13 billion Ether options expiry on Nov. 25 will put a lot of pressure on the bulls, even though ETH posted 11% gains between Nov. 22-24.
Most of the bullish bets are placing above $1,400
The rally of ether toward the $1,650 resistance on Nov. 5 indicated to the bulls that the uptrend would continue. The reason for this is that only 17% of the call options for Nov. 25 are below $1,400. Ether bears have better position than other investors for the monthly expiry of the upcoming $1.13 billion options.
The 1.44 call-to-put ratio indicates that there is more bullish betting activity (calls) going on than bearish activity (puts), to the tune of about $665 million versus $460 million. Despite the current price of Ether around $1,200, bears have a strong position.
If the Ether price falls below $1,250 at 8:00 am UTC on Nov. 25, then only $40 million worth of call options will be available. The difference in price is due to the lack of value in the right to buy Ether at $1,250 or $1,500 if it trades below those levels on options expiry.
Bears could pocket a $215 million profit
Below are the four most likely scenarios based on the current price action. The number of options contracts available for call and put instruments on Nov. 25 varies depending on the expiry price. The fact that each side has a different amount of resources gives them an advantage, and thus a potential for profit.
- Between $1,050 and $1,150: 800 calls vs. 20,200 puts. The net result favors bears by $215 million.
- Between $1,150 and $1,250: 3,300 calls vs. 15,100 puts. The net result favors bearish bets by $140 million.
- Between $1,250 and $1,300: 4,700 calls vs. 13,200 puts. The net result favors bears by $100 million.
- Between $1,300 and $1,400: 8,700 calls vs. 8,900 puts. The net result is balanced between bulls and bears.
This estimate considers the call options used in bullish bets and the put options used in neutral-to-bearish trades. Although this may be a simplification, it does not take into account more complex investment strategies.
A 7-year-old dormant Bitcoin wallet could complicate matters for Ether bulls
Investors who are bullish on ether need to push the price above $1,300 on Nov. 25 to balance the scales and avoid a potential $215 million loss. However, it seems that those who are bullish on Ether are out of luck, since a Bitcoin wallet related to the 2014 Mt. Gox hack has appeared. Gox hack moved 10,000 BTC on Nov. 23.
Ki Young Ju, the cofounder of blockchain analytics firm Cryptoquant, has verified the findings which suggest that 0.6% of the funds were sent to exchanges and may be representing sell-side liquidity.
If bears are successful in pushing the price of ETH below key support levels at the November monthly options expiration, this could provide additional momentum for further downside bets. It is unclear whether bulls will be able to turn the tables and avoid the pressure from the two-week-long descending triangle.
The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of DrBitBlock.
