Ether (ETH) price fell below $3,000 support on Jan 21 as regulatory uncertainty continues to plague the sector and rumors continue to circulate that the US Securities and Exchange Commission is reviewing crypto lending products. high-yield DeFi.
On Jan. 27, the Russian Ministry of Finance submitted a regulatory framework for cryptocurrencies for review. The proposal suggests that crypto operations be carried out within the traditional banking infrastructure and that mechanisms be included to identify the personal data of traders.
More gloomy news came as Ryan Korner, a senior special agent with the US Internal Revenue Service’s (IRS) Los Angeles Criminal Investigation field office, made negative comments during a virtual event hosted by the Law School. Gould of USC. According to Ryan, cryptocurrencies are the “future,” but “fraud and manipulation continue to proliferate in the space.”
Ether bulls are trying to determine if the Jan 24 drop to $2,140 was the last low point of the current downtrend. This 47.5% 30-day correction triggered the liquidation of a total of $1.58 billion in long futures contracts.
Notice how the price of Ether has been trending down for 75 days, respecting a channel that currently has $2,200 as a support level. On the other hand, a price increase of 19% from the current resistance of $2,500 to the resistance of $3,000 would not necessarily signify a change in trend.
Interestingly, call option instruments largely dominate Friday’s $1.1B expiry, but bears are better positioned after Ether price stabilized below $3K.
A broader view using the call-to-put ratio shows an 82% advantage for Ether bulls because $680M calls have higher open interest versus puts. of USD 410 million. However, the call-to-put indicator of 1.82 is misleading because the price drop below $3,000 made most of the bullish bets worthless.
For example, if the price of Ether stays below $2,500 at 8:00 am UTC on January 28, only $57 million of those call options will be available. That effect occurs because the right to buy Ether at $2,500 is worthless if it trades below this level.
Data suggests that bulls are primed for a significant loss
Below are the three most likely scenarios based on the current price action. The number of option contracts available on Friday for bullish (call) and bearish (put) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical profit:
- Between $2,200 and $2,400: 3,200 call options vs. 121,500 put options. The net result is 270 million dollars in favor of the selling instruments (bearish).
- Between USD 2,400 and USD 2,700: 19,500 call options vs. 95,500 put options. The net result favors the bears by USD 190 million.
- Between $2,700 and $34,700: 2,900 call options vs. 73,400 put options. The net result is USD 110 million in favor of the selling instruments (bearish).
This crude estimate sees call options used on bullish bets and put options exclusively on neutral to bearish trades. Still, this simplification ignores more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Ether above a specific price. But unfortunately, there is no easy way to estimate this effect.
The bears will try to keep ETH below $2,400
Ether bears need a slight push below $2,400 to post a $270 million gain on Friday. On the other hand, the bulls would need an 8.4% price recovery from the current $2,500 to cut their loss by 58%.
Considering the flow of bearish regulatory news, Ether bulls are unlikely to be willing to add more risk at this point. Therefore, the bulls should focus their efforts to partially salvage this loss by keeping the price of Ether above $2,500, resulting in a loss of $170 million.
January appears to have given Ether bears the upper hand in keeping the price pressure on in the short term.
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