No matter if one looks at the long-term or weekly Ether (ETH) time frame, there is little hope for bulls. In addition to the 69% negative performance year to date, a descending channel has been putting pressure on the ETH price while offering resistance at $1,200.
Regulatory uncertainty continues to weigh on the sector. For example, Starling, a UK-based digital bank, announced on November 22 that it would no longer allow customers to send or receive money from digital asset exchanges or trader. The bank described cryptocurrencies as “high risk and heavily used for criminal purposes.”
In other worrying news for the Ethereum ecosystem, decentralized finance (DeFi) platform AAVE was hacked on November 22 by short sellers aiming to profit from unsecured lending.
Interestingly, a similar exploit occurred in the Mango Markets app in October. Although this is not a direct attack on the Ethereum network, the attacker has exposed critical flaws in some of the leading decentralized collateral lending applications.
Additionally, Singapore-based cryptocurrency lender Hodlnaut is facing an alleged police investigation over allegations of deception and fraud. The problems began on August 8, after the loan company cited a liquidity crisis and suspended withdrawals on the platform.
Finally, on November 22, US Senator Elizabeth Warren linked FTX’s fall to 2008 subprime mortgages and low-cost stocks used for pump & dump schemes. Warren said that FTX’s collapse should be a “wake-up call” to regulators to apply the laws to the cryptocurrency industry.
This is why the expiration of Ether’s $1.13 billion monthly options on November 25 will put a lot of pressure on bulls, even though ETH gained 11% between November 22-24.
Most of the bullish bets were placed above $1,400
Ether’s rally towards the $1,650 resistance on Nov. 5 gave the bulls the signal to wait for a continuation of the uptrend. This becomes evident because only 17% of the call options for November 25 have been placed below $1,400. Consequently, Ether bears are better positioned for the monthly expiration of the next $1.13 billion options.
A broader view using the 1.44 ratio between put and put options shows a skewed situation with $665 million open interest for bullish (buy) bets versus $460 million in put options. However, with Ether currently hovering around $1,200, the bears have a dominant position.
For example, if the Ether price sustains below $1,250 at 8:00 UTC on November 25, only $40 million of these call options will be available. This difference occurs because there is no value in having the right to buy Ether at $1,250 or $1,500 if it trades below that level at expiration.
Bears could pocket a $215 million profit
Below are the four most likely scenarios based on current price action. The number of option contracts available on November 25 for the buy (bullish) and sell (bearish) instruments varies depending on the expiration price. The imbalance that favors each side constitutes the theoretical benefit:
- Between $1,050 and $1,150: 800 call options vs. 20,200 put options. The net result favors the bears by USD 215 million.
- Between $1,150 and $1,250: 3,300 call options vs. 15,100 put options. The net result favors the bears by USD 140 million.
- Between $1,250 and $1,300: 4,700 call options vs. 13,200 put options. The net result favors the bears by USD 100 million.
- Between $1,300 and $1,400: 8,700 call options vs. 8,900 put options. The net result is balanced between bulls and bears.
This gross estimate considers call options used in bullish bets and put options exclusively in neutral or bearish trades. Even so, this oversimplification does not take into account more complex investment strategies.
A Bitcoin wallet inactive for 7 years could complicate things for Ether bulls
Ether bulls need to push the price above $1,300 on Nov. 25 to even the scales and avoid a possible $215 million loss. However, Ether bulls appear to be out of luck, as a Bitcoin wallet linked to the 2014 Mt. Gox hack moved 10,000 BTC on Nov. 23.
Ki Young Ju, co-founder of blockchain analytics firm Cryptoquant, has verified the findings, noting that 0.6% of the funds were sent to the exchange and may represent sell-side liquidity.
If the bears control the expiration of the November ETH monthly options, that will likely add fireworks for further downside bets. So, at the moment, there is no indication that the bulls can turn things around and avoid the pressure from the two-week-long descending triangle.
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