Ether (ETH) price dropped below $3,000 in support on January 21 as regulatory uncertainty continues to weigh on the sector and rumors that the US Securities and Exchange Commission is considering high-yield crypto lending Davey products continue to circulate.
On January 27, the Russian Ministry of Finance submitted the regulatory framework for cryptocurrencies for consideration. The proposal proposes to carry out encryption operations within the traditional banking infrastructure and includes mechanisms to identify the personal data of traders.
More downside news came when Ryan Corner, chief special agent for the IRS’ Domestic Criminal Investigations Division in Los Angeles, made negative comments during a virtual event hosted by the University of Southern California School of Law. Ryan said cryptocurrency is the “future,” but that “fraud and manipulation are still rife in the space.”
Ethereum bulls are trying to see if the January 24 drop to $2,140 is the last bottom in the current downtrend. This 47.5% correction in 30 days resulted in the settlement of long-term futures contracts with a total value of $1.58 billion.
Ether/USD price on FTX. Source: Trading View
Notice how the price of Ether fell in 75 days against the channel, which is currently $2,200 as a support level. On the other hand, a 19% rise in the price from the current $2,500 to $3000 resistance level will not necessarily mean a trend reversal.
Oddly enough, the Friday expiry of $1.1 billion is mostly dominated by put options, but the bears are in a better position after the price of Ether settled below $3,000.
Ether options accrue open interest until they expire on January 28th. Source: CoinGlass
A broader view using the buy-to-be ratio shows an 82% advantage for speculators over Ethereum because the $680 million buy (buy) instrument has a higher open interest rate compared to $410 million. However, the 1.82 Call-to-put indicator is misleading as the price drop below $3000 has rendered most of the bullish bets worthless.
For example, if the price of Ether remains below $2,500 at 08:00 UTC on January 28, then only $57 million of these call (buy) options will be available. This effect occurs because there is no value in the right to buy Ether at $2,500 if it is trading below this level.
The data indicates that the bulls are poised for big losses
Here are the three most likely scenarios based on current price action. The number of options contracts available on Fridays for call and bearish instruments varies depending on the expiration price. The disadvantage to each side is a theoretical advantage:
Between $2,200 and $2,400: 3,200 calls for $121,500. The net result is $270 million, which is in favor of Selling Tools (Bears).
$2,400 to $2,700: 19,500 calls for $95,500. The net result in favor of the Bears is $190 million.
$2,700 to $2,900: 34,700 calls for $73,400. Net result in favor of put options of $110 million.
This estimate takes into account bullish calls and purely bearish positions. However, this simplification ignores more complex investment strategies.
For example, a trader can sell a put option and actually get a negative Ether position above a certain price. Unfortunately, there is no easy way to calculate this effect.
Bears will try to keep ETH below $2,400
Ether Bears need a cautious boost below $2,400 to make $270 million in profit on Friday. On the downside, the bulls will need an 8.4% price retracement from the current $2,500 level to trim a 58% loss.
Given the flow of bearish regulatory news, Ether bulls are unlikely to want to add more risk at this time. Therefore, the bulls should focus their efforts to partially salvage this defeat by keeping the price of Ether above $2,500, resulting in a loss of $170 million.
January appears to have given Ether an advantage in keeping pressure on price in the short term.
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