Ascending channel pattern and Ethereum options data back traders’ $5K ETH target

The recent record breaking $4,870 all time high reached by Ether (ETH), has excited Ether (ETH), bulls. Although it was a new high for Ether (ETH) in U.S. dollars terms, it is still 51% lower than June 2017’s Bitcoin (BTC). It is possible, however, that the 0.155 BTC price reached in the previous cycle was a reflection of the exaggerated expectations that were sparked by the initial coin offering frenzy.

Because of its success, the Ethereum network has experienced congestion and high fees. This has brought competition closer. In mid-2017, NEM (XEM) and Ethereum Classic (ETC), were the top “competitors”. These combined represented only 13% of Ether’s $37 billion market capitalization.

Today, the aggregate capitalizations of Binance Coin (BNB), and Solana’s SOL are at 32%, compared to Ether’s $557 trillion.

Ether trades in an ascending channel at the moment with a target of $5,000. However, bears still seem to have doubts about the network’s ability deliver Eth2 before year-end.

Kraken price in ETH/USD Source: TradingView

The most prominent use case for Ethereum this year, decentralized finance (DeFi), caught regulators’ attention. Caroline Crenshaw, United States Securities and Exchange Commission Commissioner, published her opinion on Nov. 9 in an article entitled “DeFi risks regulations and opportunities.” She also mentions the lack of market protections for the sector and raises concerns about market manipulation and pseudonymity.

The value of the Ethereum network’s smart contract assets reached $94 billion, a 42% increase in just three months. There is no doubt that there is a growing demand for the DeFi, nonfungible token, NFT, oracle, and decentralized marketplaces, regardless of competition.

Total value of Ethereum network locked in USD Source: DeBank

It is worth noting that even with Ether’s positive price action and strong usage metrics, bearish put options dominate Friday’s $700 million ETH options expiry.

Ether options combine open interest for Nov. 12. Source: Bybt

The weekly expiry is dominated by $415 million worth of put (sell) options, 31% more than the $285 million worth of call (buy). Because of the recent rally, most bearish bets will likely be wiped out by the 0.69 call/put ratio.

If Ether’s price is above $4,700 on Nov. 12, then only $10 million worth (sell) options will remain available at expiry. If Ether is trading at above $4,700, a right to buy Ether will not be of any value.

Bears could still reach the $4,600 mark

Here are the most likely scenarios based on current prices. The data also shows how many bulls (call) or bears (put) contracts will be available by Nov. 12.

The theoretical profit is the imbalance that favors each side.

Between $4,500 to $4,600: 7,500 calls against 13,600 puts. The net result favors the bear (put) option by $25 million. Between $4,600 and $4700: 12,700 calls against 7,300 put. The net result favors the bull call instrument. Between $4,700 and $4800: 17,300 calls against 2,100 put. 75 million were favored by the call (bull), instruments. Above $4,800: 24,300 calling vs. 100 putting. Bulls are in complete dominance with $115 million profit.

This rough estimate includes the bullish options and neutral-to-bearish options. This oversimplification overlooks complex investment strategies.

A trader might have sold a call option and thus gained negative Ether exposure below a certain price. This effect is difficult to quantify.

Although the Ether price is likely to fall, $5,000 remains the goal.

Bulls will make a substantial $115 million if Ether prices remain above $4,800 on Nov. 12. A $25 million loss for ETH bears should be considered a win.

Bears have a chance to avoid losses on Nov. 12. They can press Ether’s price down below $4,600 on November 12, which is just 3% lower than the current $4,750. Is that enough to reject Ether’s ascending channel, which was initiated three weeks ago. There’s still room for $4500, but that won’t break the support level.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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