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Bitcoin, Ethereum Tumble Below Key Levels After Russian Crypto Ban, US Tech Wreck

Tyler Durden's Photo
by Tyler Durden
Friday, Jan 21, 2022 - 02:15 AM

As we detailed earlier, the Central Bank of Russia issued a report today calling for a blanket ban on domestic cryptocurrency trading and mining.

The report titled "Cryptocurrencies: Trends, risks, measures" compares cryptocurrencies to a Ponzi scheme and calls for a complete ban on their use throughout Russia. The authors claim that cryptocurrencies are highly volatile in nature and are being used as a tool for illegal activities. The report also warned that crypto could pose a risk to financial sovereignty and could aid people in taking money out of the national economy. The report read:

“Potential financial stability risks associated with cryptocurrencies are much higher for emerging markets, including Russia.” 

The Russian central bank demanded a complete ban on over-the-counter (OTC) trading desks, crypto exchanges as well as peer-to-peer exchanges. 

At first, cryptos seemed to shrug off the ban, rallying into and beyond the US equity market open but once US tech stocks started to take a beating, cryptos began to weaken and have accelerated as Asian markets open this evening...

This downswing took Bitcoin back below the $40,000 Maginot Line...

And Ethereum back below $3,000...

Notably, Bitcoin's correlation with tech stocks is soaring once again...

Interestingly, as Russia moves to ban crypto, Bloomberg's Vincent Cignarella points out that the Biden administration’s threat to block Russian banks’ access to dollars might have carried weight in the past, but in these days of alternative cryptocurrencies, it’s unlikely to work.

Dollar sanctions may prove all but moot - and Bitcoin could rally significantly - if U.S. officials were to follow through with their dollar threat, as the token offers Russia payment options not available in the past.

Cignarella notes that bitcoin appears to be in the process of forming a similar pattern seen last June. In completing a third dominant wave, one should expect a small bounce, wave 4 and then a reversion lower, wave 5, to complete -- which would signal the end of the current selloff.

It took about a month from last May to June for this to happen. Once complete, Bitcoin entered wave A, the first wave of a reversal. In this case it was a reversal higher, which many mistake as only a minor correction to the previous trend. If the pattern follows last summer, inspired by Russia looking for alternative methods of payments, the rally that could follow would potentially take Bitcoin above previous record highs north of $70,000. All a bit of a what-if scenario no doubt, but a what, and an if, that are a reasonable outcome.

On the other side of the ledger, CoinTelegraph reports that even though Bitcoin is said to be correlated to traditional markets, BTC derivatives traders were not expecting sub-$44,000 prices, according to the Jan. 21 options expiry. Friday’s $590 million open interest will allow bears to score up to $82 million if BTC trades below $41,000 during the expiry.

Here are the four most likely scenarios for Jan. 21's $590 million options expiry. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiry price, the active quantity of call (buy) and put (sell) contracts varies:

  • Between $40,000 and $41,000: 30 calls vs. 3,320 puts. The net result is $132 million favoring the put (bear) options.

  • Between $41,000 and $42,000: 170 calls vs. 2,180 puts. The net result is $82 million favoring the put (bear) instruments.

  • Between $42,000 and $44,000: 1,480 calls vs. 1,130 puts. The net result is balanced between call and put options.

  • Between $44,000 and $45,000: 2,980 calls vs. 630 puts. The net result favors call (bull) instruments by $103 million.

This crude estimate considers put options being used in bearish bets and call options exclusively in neutral-to-bullish trades. However, this oversimplification disregards more complex investment strategies.

Bulls need $44,000 to bag a $103 million profit.

Finally, data released by crypto platform Voyager Digital indicates that nearly two out of three Americans are bullish on crypto, believing it will gain value in 2022.

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