Bearish sentiment continues to dominate the Bitcoin market as the major cryptocurrency recorded a decisive price drop below the $100,000 psychological support zone. Following this highly volatile display, blockchain analytics firm Glassnode took note of the reaction in the BTC options market.
Bitcoin traders expect more corrections ahead
The BTC options market gives traders the right to buy or sell Bitcoin at a certain price or on or before a certain date. Options allow traders to hedge against risk and bet on volatility, making them a good gauge of trader sentiment.
In particular, Bitcoin’s retest and decline below the $100,000 price was anticipated by the options market, which has been accumulating put options (BTC sell bets) as protection against bearish risk. Following this incident, Glassnode notes that traders reacted by adjusting their positions based on higher uncertainty and fears of further declines.
Evaluating several indicators guiding the options market, Glassnode notes that ATM implied volatility is increasing as near-term market uncertainty creeps in. The current 1-week IV is 51%, while the 6-month IV is 48%, indicating that traders are expecting the next few days/weeks to be volatile.
Meanwhile, the 25 delta skew, which compares put demand to call demand (upside bets), is very bearish, with one-week and one-month skew ranges of around 12.4% and 10%, respectively. In context, positive skew means that traders fear the price will fall, making put options more expensive due to higher demand.
Traders’ fears of further declines are strengthened by data on taker flows. This shows that recent flows over the last 24 hours have been dominated by long puts (38.8%). However, it is worth noting that when dealers sell these puts, they also sell BTC futures to hedge their risk. As spot prices fall, hedging continues, creating a feedback loop that ultimately increases volatility and accelerates price declines.
The market focused on the $95,000 put.
As the price fell below $100,000, options traders’ attention focused on the heavily quoted $95,000 put, according to Glassnode. However, while BTC is still trading above this strike, continued demand indicates expectations of further declines as traders continue to accumulate protection against larger losses.
As of this writing, Bitcoin is trading at $96,311 on the daily chart, reflecting a loss of 3.86% over the last 24 hours. Meanwhile, trading volume decreased by 12.46%, reaching $99.92 billion.
Featured image from Flickr, chart from Tradingview
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