Key Points
- Bitcoin’s recent price correction has led to a significant rise in downside bets in the options trading space.
- The put-call ratio for Bitcoin options open interest has surpassed one, indicating a bearish sentiment in the market.
A recent downturn in the price of Bitcoin (BTC) has sent shockwaves through the options trading sector. There has been a considerable surge in downside bets as traders express growing apprehension about Bitcoin’s near-future price direction. This concern is reflected in the rising open interest for put options and the escalating implied volatility.
Options Trading Data Shows Bearish Outlook
Data from Deribit, a prominent cryptocurrency derivatives exchange, reveals that the put-call ratio for Bitcoin options open interest has exceeded one as we near this week’s Friday expiry. This rise signifies a bearish sentiment in the market as traders are increasingly engaging in put options, which yield profits if the price drops, as opposed to call options that gain from price hikes.
Deribit’s data also shows that traders are focusing on put options at strike prices of $58,000, $52,000, and $48,000. This trend suggests that traders either foresee potential support at these price levels or are actively hedging against a drop.
Increased Demand for Downside Protection
ETC Group, a leading digital asset investment solutions provider, provided further insight into this trend in their recent report. They noted an increase in Bitcoin options open interest driven largely by a rise in relative put open interest. This is consistent with Bitcoin’s recent price correction as traders increase their downside bets and hedges. The report also highlighted a significant increase in demand for downside protection, signaled by a spike in put-call volume ratios and one-month 25-delta option skew.
The ETC Group report also emphasized a considerable rise in Bitcoin’s implied volatility, a metric that gauges market expectations of future price fluctuations. This has risen to about 50.5% for one-month at-the-money options. Traders are paying a higher premium for options with increased implied volatility, indicating their readiness to pay more for protection against potential price movements.
The report also referred to an “inverted term structure of volatility”, a situation where short-dated options have significantly higher implied volatilities than longer-dated ones. According to ETC Group analysts, this can be a sign of overextended bearishness in the options market.
As of this writing, Bitcoin is trading at $56,129, marking a 1.20% decline in the last 24 hours. The cryptocurrency has fallen 8.70% in the last week. Despite Bitcoin’s downward trend, the trading volume for Bitcoin has remarkably surged to $33.96 billion, marking a 69% rise in the last 24 hours.
