Concerns about the economy and the expiration of $1 billion of Ethereum options this week threaten to keep the price of the cryptocurrency below $1,800.
Ether’s (ETH) performance over the last three months has been disappointing, with the cryptocurrency testing the $1,800 support for the first time since July 2021 following a 50% fall since April 3.
Due to stock market instability, investors sought refuge in the US dollar, and on May 13, the DXY index achieved its highest level in 20 years. The DXY index compares the US dollar to a basket of international currencies, including the British pound (GBP), the euro (EUR), and the Japanese yen (JPY).
Furthermore, the United States’ five-year plan, the 10-year Treasury yield hit its highest level since August 2018, trading at 3.10 percent, indicating that investors are looking for higher yields to compensate for inflation. In a nutshell, macroeconomic data indicates risk-averse investor attitude, which helps to explain Ether’s decline.
A seven-block chain reorg on Ethereum’s Beacon Chain on May 25 added to the fear among Ether dealers. A legal transaction sequence was removed from the chain because a competing block received higher network support. Fortunately, this is a typical occurrence, and it might have resulted from a resource-hungry miner or a flaw.
According to Coinglass statistics, the major sufferers of Ether’s 11 percent price drop were leverage traders (longs), who witnessed $160 million in collective liquidations at derivatives exchanges.
The Bears are shooting for a $325 million profit.
Based on the present price activity, the three most likely possibilities are listed below. The quantity of call (bull) and put (bear) options contracts available on May 27 vary based on the expiry price. The theoretical profit is determined by the imbalance favoring either side:
- 0 calls vs. 230,000 puts between $1,600 and $1,700. The overall outcome is $370 million in favor of the put (bear) instruments.
- 50 calls vs. 192,300 puts between $1,700 and $1,800. By $325 million, the outcome favors the bears.
- 3,300 calls vs. 150,000 puts between $1,800 and $2,000 The overall outcome is $280 million in favor of the put (bear) instruments.
This rough estimate takes into account put options in bearish bets and call options in neutral-to-bullish transactions. Despite this, more nuanced investing methods are ignored by this simplicity.
For example, a trader may have sold a put option to obtain positive exposure to Ether above a certain price, but there’s no simple method to evaluate this effect.
