Bears target new lows for Ethereum as Friday’s $1.1B options expiry approaches

The Ether (ETH), price fell below $3,000 support Jan. 21, as regulatory uncertainty continues to weigh on the sector and rumors continue to circulate that the United States Securities and Exchange Commission will be reviewing DeFi’s high yield crypto lending products.

The Russian Finance Ministry submitted a framework for crypto regulation on Jan. 27. This proposal proposes that crypto operations be carried out within traditional banking infrastructure, and that tools to identify traders’ personal information are included.

Additional bearish news was provided by Ryan Korner, an elite special agent of the United States Internal Revenue Service Criminal Investigations Los Angeles field office. He made negative comments during a virtual event hosted at the USC Gould School of Law. Ryan believes crypto is the future, but fraud and manipulation remain rampant in this space.

Ether bulls are trying determine if Jan. 24’s drop to $2.140 was the bottom of the current downtrend. In total, $1.58 billion worth of long futures contracts were liquidated by this 47.5% correction over 30 days.

Price of Ether/USD at FTX. Source: TradingView

You can see Ether’s price trending down for 75 days. This is despite a channel holding $2,200 as support. However, a 19% price rise from the $2,500 resistance to the $3,000 resistance does not necessarily indicate a trend reversal.

Curiously, Friday’s $1.1 Billion expiry will see call (buy) options dominate, but bears are more positioned now that Ether has stabilized below $3,000.

For Jan. 28 expiry, Ether options will aggregate open interest. Source: CoinGlass

The call-to-put ratio gives Ether bulls an 82% advantage because the $680million call (buy) instruments have more open interest than the $410 million put option (sell). The 1.82 call-to put indicator is misleading because most bullish bets were lost when the price dropped below $3,000

If Ether’s price is below $2,500 by Jan. 28 at 8:00 UTC, only $57 million worth call (buy) options will remain. This is because Ether is trading below $2,500, and there is no value to the right to purchase it at $2,500.

Data shows that bulls are headed for a significant loss

Based on current price action, here are the three most likely outcomes. The expiry price will determine the number of options contracts that are available for bulls (call) or bears (put) instruments on Friday. The theoretical profit is the result of an imbalance in favor of each side.

Between $2,200 to $2,400: 3,200 calls against 121,500 put. The net result favors the put (bear), instruments by $270 million. Between $2,400 to $2,700: 19,500 call vs. 95,000. puts. The net result favors bears $190 million. Between $2,700 & $2,900: 34 700 calls vs. 73,000 puts. The put (bear), options are favored by $110 million.

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

A trader might have sold a call option and thus gained a negative exposure above a certain price. Unfortunately, it’s not possible to accurately estimate the effect.

Bears will attempt to keep ETH under $2,400

To make a $270 million profit Friday, Ether bears will need to push down below $2,400. To reduce their 58% loss, bulls will need an 8.4% price rebound from the $2,500 they currently have.

Given the current bearish regulatory newsflow, Ether Bulls won’t be willing to take on more risk. Bulls should focus their efforts to salvage the defeat by holding Ether price at $2,500. This would result in a $170million loss.

January appears to have given Ether bears an upper hand in keeping pressure on the price for the short-term.

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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