Ether’s (ETH) 330% gain so far this year has been largely driven by the growth of decentralized finance and the fever for non-fungible tokens. Proof of this is that OpenSea, NFT’s largest market, has passed the impressive $ 10 billion mark in cumulative trade volume.
However, traders are concerned that the 15% correction that followed the all-time high of $ 4,870 on November 10 could indicate that a larger bearish move is taking place. The breakout of the 55-day ascending channel reinforces this thesis and the expiration of $ 550 million in Ether options this Friday will likely favor bears.
The total value locked in Ethereum smart contracts ($ 86 billion) represents 70% of the market and this metric has increased by 25% in the last two months, indicating that the industry leader has not been affected by commissions. USD 50 average of the network.
Regulatory uncertainties, especially in the US, have overshadowed the bull run in the cryptocurrency markets. For instance, On October 18, the New York Attorney General’s office issued a “cease and desist” order to two cryptocurrency lending platforms operating in the state.
November 1st, The President’s Working Group on Financial Markets (PWG) released a report focusing on the risks of stablecoins to users and financial stability. The report urged Congress to issue a federal prudential framework, invoking the jurisdiction of the SEC and CFTC.
Most recently, on November 16, US lawmakers began fighting changes to tax reporting rules for cryptocurrency transactions over $ 10,000 in the recently passed infrastructure bill. A group of congressmen called for revisions to exclude miners, validators and wallet developers from tax liability under the bipartisan infrastructure (BIF).
Whatever the reason behind the recent Ether price weakness, the bulls’ over-optimism on Friday’s $ 550 million option expiration will likely give the bears more ammunition to drag the market lower.
At a glance, the $ 275 million worth of call options pretty much matches the $ 280 million value of ETH put instruments. Still, the 0.98 call / put ratio is misleading because some of those prices now seem implausible.
For example, if the price of Ether remains below $ 4,400 at 8:00 am UTC on November 19, only 7% of the call options will enter expiration. Therefore, There is no value in the right to buy Ether at $ 4,400 if it is trading below that price.
The bears have full control of Friday’s expiration
Here are the four most likely scenarios for the November 19 expiration. The imbalance that favors one side or the other represents the theoretical gain. That is, depending on the expiration price, the number of purchase (call) and sale (put) contracts that are activated varies:
- Between $ 4,000 and $ 4,100: 80 call options vs. 35,100 put options. The net result favors the sale instruments (bearish) in USD 140 million.
- Between $ 4,100 and $ 4,200: 340 call options vs. 30,000 put options. The net result favors the sale instruments (bearish) in USD 120 million.
- Between $ 4,200 and $ 4,400: 4,840 call options vs. 16,900 put options. The net result is USD 60 million in favor of the sale instruments (bearish).
- Above $ 4,400: 7,640 call options vs. 8,700 put options. The net result is even.
This gross estimate considers that call options are used in bullish strategies and put options exclusively in neutral to bearish operations. However, a trader could have sold a call option, effectively gaining negative exposure to Ether above a specific price. Unfortunately, there is no easy way to estimate this effect.
Bears have a clear opportunity to secure $ 140 million in profit
Ether’s price is currently trading near $ 4,150, and there are incentives for bears to push ETH below $ 4,100 before tomorrow’s expiration. In that case, your estimated earnings reach $ 140 million.
On the other hand, taking into account Ether’s 12% correction in the last three days, The bulls would be more than happy to take a loss of $ 60 million if the expiration price of ETH surpasses $ 4,200.
Avoiding a loss of $ 140 million is the best scenario for bulls currently, considering the bearish scenario caused by regulatory uncertainties.
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