The macroeconomic risks that are looming along with this week’s $1 billion Ethereum options expiry are threatening to keep the Ethereum price below the $1,800 level.
The Ether’s ( ETH) performance over the last three months has not been more than pleasing for those who own it, along with the 50 percent correction that has occurred since April 3 has caused Ether to reach the $1800 support for the first time since July 2021.
In the wake of the volatility of stocks investors were seeking refuge with the United States dollar and on May 13th, the DXY index hit its highest level in over 20 years. DXY is a measure of how much of the USD against a variety of major foreign currencies comprising those of the British pounds (GBP) as well as EUR, (EUR) along with the Japanese yen (JPY).
Furthermore also, the 5-year U.S. Treasury yield reached its highest since August 2018 at 3.10 percent on May 9, signalling that investors want higher yields to offset inflation. In essence macroeconomic data indicates an investor’s fear of risk and this is one reason for the decline in Ether.
In addition to causing fear and panic Ether traders was an seven-block reorg of the chain that was carried out on the Ethereum Beacon Chain the 25th of May. An authentic transaction was taken off the chain because of an unrelated block receiving greater support from the network users. This is not common and could have been caused by an individual miner that has high resource or from a glitch.
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The most significant people who were the victims of Ether’s price correction of 11% included leverage investors (longs) who were hit with an aggregate of $160 million of liquidation at exchanges for derivatives, in accordance to figures from Coinglass.
Bulls put their bets at $2,100 or higher.
The current open interest for Ether’s monthly options expiry in May has been set at $1.04 billion, however, the actual value will be much less since the bulls were extremely optimistic. The traders could have been deceived by the flimsy pump of $2,950 on the 4th of May because their bets on the May 27 expiration date go beyond the limit of $3,000.
The price drop below $1,800 caught bulls by shock because all option for call (buy) choices for the 27th of May have been set below the price of $1,800.
Its 0.94 call-to-put ratio reveals an unintentional dominance of put options of $540 million (sell) open-interest in comparison to the $55 million calls (buy) alternatives. But, given that Ether is at or near $1,800, each bet on bullishness will likely to be useless.
If the price of Ether is lower than $1,800 by 8:30 am UTC on the morning of May 27th there will be no 505 million option call will be offered. This is because the right to purchase Ether for $1,800 or greater is not valid in the event that Ether falls below that level at the time of expiration.
Bears are aiming for a 325 million dollar revenue
Here are the three most likely scenarios that are based on current price movement. The amount of options contracts that are available on the 27th of May for call (bull) or put (bear) instruments is different in accordance with the expiry date and the price. The balance favoring one side is the theoretical profit:
- between $1600 to $1700 zero calls. 230,000 put. The net result favors puts (bear) instruments over the call by 370 million.
- Between $1,700 and $11,800: 50 calls vs. put 192,300. The final result favors bears by $325 million.
- Between $1,800 to $2000: 3.300 phone calls. 150,000 put. The net effect favors the puts (bear) instrument by about $280 million.
This rough estimate takes into account put options that are used in bearish bets, and the call options solely for neutral-to-bullish bets. However, this simplified approach does not take into account more complex strategies for investing.
A trader might have sold put options, thus getting positive exposure to Ether over a set price, however, there’s no way to determine the impact.
Bulls should put down the towel and concentrate on the expiration date in June
Ether bears must keep the price at or below $1,800 on May 27 in order to earn the $325 million profit. However the bulls’ ideal scenario calls for a move higher than $1,800, which will reduce the loss of $45 million.
Ether bulls have $160 million leveraged long positions which were liquidated in May 26 which means they will have less leverage to push prices higher. However it is likely that bears will attempt to reduce Ether below $1,800 prior to the option expiry date on May 27.
