The recent record breaking $4,870 all time high reached by Ether (ETH bulls) on Nov. 10 is a reason for excitement. Although it was a new USD high, ETH is still 51% lower than June 2017’s Bitcoin (BTC), terms. However, it’s possible that the 0.155 BTC price reached in the previous cycle reflected overzealous expectations during the initial coin offering (ICO).
Because of its own success, the Ethereum network caused congestion and high fees which brought competition closer. In mid-2017, NEM (XEM), and Ethereum Classic (ETC), were the top “competitors”. These combined represented just 13% of Ether’s $37 billion market cap.
Today, Binance Coin’s (BNB), and Solana (SOL) aggregate capitalization stands at 32% versus Ether’s $557 billion.
Currently, Ether is trading in an ascending channel, with a target of $5,000. However, bears still seem to have reason to doubt the network’s ability to deliver ETH 2.0 before year-end.
Kraken price in ETH/USD Source: TradingView
The most prominent use case for Ethereum this year, decentralized financing (DeFi), caught regulators’ attention. Caroline Crenshaw, United States Securities and Exchange Commission (SEC), published her opinion Tuesday in an article entitled “DeFi Risks Regulations and Opportunities”. She mentions the lack of market protections in this 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 denying that there is growing demand for the Ethereum network’s DeFi, non-fungible tokens, oracles, and decentralized marketplaces, regardless of competition.
Total Value Locked (TVL), adjusted by Ethereum network, in USD Source: Debank.com
It is striking that even though Ether has a positive price action, which is backed up by strong usage metrics (ETH $700,000,000 expiry) bearish put (sell), options dominate Friday’s ETH $700,000,000 expiry.
Ether options combine open interest for Nov. 12. Source: Bybt
The weekly expiry is dominated by the $415 million put (sell), options, 31% more than the $285 million calls. Because of the recent rally, most bearish bets will 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 (put) options will be 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 Oct. 20.
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 to $4,700: 12,700 call vs. 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 exposure to Ether. This effect is difficult to quantify.
Although Ether prices may fall, $5K is still the goal
Bulls will make a substantial $115 million if Ether prices hold above $4,800 Friday. Accordingly, ETH bears should consider a loss of $25 million a victory.
Bears have a chance to avoid losing on Friday’s expiry. 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.