Regardless of whether one analyzes Ether’s (ETH) longer term or weekly time frame, there is little hope for the bulls. In addition to the negative 69% year-to-date performance, a descending channel is pushing the price of ETH 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 do just that they no longer allow customers to send or receive money from digital asset exchanges or traders. The bank described cryptocurrencies as “high risk and heavily used for criminal purposes”.
Other news related to the Ethereum ecosystem involved the decentralized finance (DeFi) platform AAVE, which suffered an attack by short sellers on November 22nd aimed at profiting from undersecured loans.
Interestingly, a a similar exploit happened at Mango Markets DeFi apps in October. Although not a direct attack on the Ethereum network, the attacker has shown critical flaws in some of the main decentralized collateral lending applications.
Furthermore, a cryptocurrency provider based in Singapore Hodlnaut is reportedly facing a police investigation due to allegations of cheating and fraud. The issues began on August 8 after the lending firm reported a liquidity crisis and suspended withdrawals on the platform.
Finally, on November 22, United States Senator Elizabeth Warren correlated the demise of the FTX exchange with 2008 subprime mortgages and penny stocks used for pump-and-dump schemes. Warren said the FTX collapse should be a “wake-up call” for regulators to enforce laws on the crypto industry.
That’s why the expiration of $1.13 billion in Ether monthly options on November 25th will put a lot of price pressure on the bulls, even though ETH posted an 11% gain between November 22nd and 24th.
Most of the bullish bets were placed above $1,400
Ether’s strengthening towards the $1,650 resistance on November 5 signaled bulls to expect a continuation of the uptrend. This is evident as only 17% of November 25 call options were placed below $1,400. As a result, Ether bears are better positioned for the upcoming monthly expiration of $1.13 billion in options.
A broader view using a call-to-put ratio of 1.44 shows a skewed situation with calls open interest at $665m versus $460m puts. Still, with Ether currently hovering around $1,200, the bears have the upper hand.
For example, if the price of Ether stays below $1,250 on November 25th at 8:00 UTC, only these $40 million worth of call (buy) options will be available. This difference occurs because the right to buy Ether at $1,250 or $1,500 is meaningless if it is trading below that level at expiration.
The Bears could make $215 million
Below are the four most likely scenarios based on current price action. The number of option contracts available on November 25 for call (bull) and put (bear) instruments varies depending on the expiration price. An imbalance in favor of each side constitutes a theoretical profit:
- Between $1,050 and $1,150: 800 calls vs. 20,200 insertions. The net result favors the bears by $215 million.
- Between $1,150 and $1,250: 3,300 calls vs. 15,100 insertions. The net result favors bear bets by $140 million.
- Between $1,250 and $1,300: 4,700 calls vs. 13,200 insertions. The net result favors the bears by $100 million.
- Between $1,300 and $1,400: 8,700 calls vs. 8,900 insertions. The net result is balanced between bulls and bears.
This rough estimate takes into account call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this simplification does not take into account more complex investment strategies.
A 7-year-old dormant Bitcoin wallet could make things difficult for Ether bulls
Ether bulls need to push the price above $1,300 on November 25 to balance the scales and avoid a potential loss of $215 million. However, Ether bulls seem to be out of luck as the hack-related Bitcoin wallet Mt. Gox from 2014 moved 10,000 BTC on November 23.
Ki Young Ju, co-founder of blockchain analytics firm Cryptoquant, verified the findings, noting that 0.6% of funds were sent to exchanges and may represent sell-side liquidity.
If the bears dominate the November ETH monthly options expiration, this will likely add firepower for further bearish bets. So at this point, there is no indication that the bulls can turn the tables and escape the pressure of the two-week descending triangle.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.