The growth of decentralized finance, as well as the explosion of non-fungible tokens, has largely contributed to Ether’s (33%) year-to-date gains. OpenSea, which is the largest NFT marketplace surpassing $10 billion in total trading volume, is proof of this.
However, traders are concerned that the 15% correction following the Nov. 10 all-time high of $4,870 could signal a more bearish trend. This thesis is reinforced by the rupture of the 55-day ascending channel. Nov. 19’s expiry of $550 million Ether options will likely favor bears.
Bitstamp price in Ether/USD Source: TradingView
The market leader in Ethereum, with $86 billion of total value locked into smart contract contracts, is 70%. This metric has increased 25% over the past two months. It also indicates that the $50 average gas fee did not affect the Ethereum market leader.
Total Value Locked (TVL), adjusted by Ethereum network, in USD Source: Debank.com
The bull-run of cryptocurrency markets has been disrupted by regulatory uncertainties in particular the United States. Two crypto lending platforms that are based in New York were given a cease and desist order by the New York Attorney General on Oct. 18.
The President’s Working Group on Financial Markets released a report on Nov. 1 that focused on the risks of stablecoins to users and financial stability. The report urged Congress not to adopt a federal prudential framework without referring to the SEC or CFTC.
Recenty, U.S. lawmakers began to oppose changes in tax reporting rules for cryptocurrency transactions exceeding $10,000. A group of congressmen called for changes to exempt miners, validators, and wallet developers from tax purposes under the Bipartisan infrastructure Framework (BIF).
Whatever the cause, the Ether price slump is likely to be exacerbated by bulls’ optimism about Friday’s ETH $550m options expiry. This will likely allow bears more ammunition to push down the market.
For Nov. 19, Ether options combine open interest in a total of 19 Source: Bybt
The $275 million in call (buy) options is almost equal to the $280 million in ETH put(sell) instruments. The 0.98 call-to–put ratio is misleading, as some of these prices seem absurd.
If Ether’s price is below $4,400 on Nov. 19, then only 7% of the call (buy), options will be available at expiry. If Ether is trading below $4,400, the right to purchase Ether will not be of any value.
Friday’s expiry is dominated by bears
These are the most likely scenarios that will result in the Nov. 19 expiry. The theoretical profit is the imbalance that favors one side. The expiry price determines the amount of active call (buy) or put (sell) contracts.
Between $4,000 to $4,100: 80 calls against 35,100 put. The net result favors bear (or put) instruments by $140million. Between $4,100 and 4,200: 340 calls against 30,000 puts. The net result favors the put (bear), instruments by $120million. Between $4,200 and $4.400: 4,840 calls against 16,900 puts. The net result favors the put (bear), instruments by $60 million. Above $4,400: 7,640 call vs. 8,700 put. The net result is even.
This rough estimate includes call (buy), options in bullish strategies, and put (sell), options in neutral-to bearish trades. A trader could have made a sale of a call option and thus gained a negative exposure to Ether at a certain price. This effect is difficult to quantify.
The bears are in the best position to make a profit of $140 million
The Ether price is currently trading at $4,150. There are incentives for bears to push Ethereum below $4,100 before Friday’s expiry. Their estimated profits would be $140 million in this case.
However, given Ether’s 12% correction in the last three days, bulls would not mind a $60 million loss if the ETH expiry prices rise above $4,200.
The bulls should avoid a loss of $140 million, given the bearish regulatory environment.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.