Bearish sentiment continues to dominate the Bitcoin market as the leading cryptocurrency recorded a decisive price break below the psychological support zone of $100,000. In response to this highly volatile display, blockchain analysis firm Glassnode noted the reaction of the BTC options market.
Bitcoin traders expect further correction
The BTC options market gives traders the right to buy or sell Bitcoin at a certain price or before a certain date. Options allow traders to hedge risk or bet on volatility, making them a good way to gauge trader sentiment.
In particular, Bitcoin’s retest and fall below the $100,000 price mark was anticipated by the options market, which had been accumulating put options (bets to sell Bitcoin) as protection against bearish risk. In response to this incident, Glassnode notes that traders are reacting by adjusting their positions based on increased uncertainty and fear of further downside.
In evaluating several indicators guiding the options market, Glassnode notes that ATM’s implied volatility is rising as short-term uncertainty in the market gradually increases. The 1-week IV is currently 51%, while the 6-month IV is 48%, indicating that traders expect the coming days/weeks to be volatile.
On the other hand, the 25 delta skew comparing demand for puts and calls (bets to the upside) is very bearish as the 1-week and 1-month skews are in the range of around 12.4% and 10%, respectively. For context, positive skew means that demand is high and puts are more expensive because traders fear further price declines.
Traders’ concerns about further declines are also reinforced by taker flow data showing that recent flows in the past 24 hours were dominated by put purchases (38.8%). However, it is worth noting that when dealers sell these puts, they are also hedging their risk by selling BTC futures. Hedging continues even as spot prices decline, ultimately creating a feedback loop that increases volatility and accelerates price declines.
Market focuses on $95,000 put
With the price below $100,000, options traders’ focus shifted to the heavily bid $95,000 put, according to Glassnode. However, while BTC is still trading above this strike, sustained demand points to expectations for further downside as traders continue to accumulate protection against further losses.
At the time of writing, Bitcoin is trading at $96,311 on the daily chart, reflecting a decline of 3.86% over the past 24 hours. Meanwhile, trading volume decreased by 12.46% to $99.92 billion.
Featured image from Flickr, chart from Tradingview
