Bitcoin option traders remain bearish, short term volatility on the cards

  • The Bitcoin implied volatility remains in the positive zone for now making options cheaper and traders bearish.
  • While traders remain skeptical, the fear on the macro level has subsided quite a bit after the recent correction.

After heavy volatility earlier this month, the Bitcoin price movement has become quite rangebound recently. On the weekly chart, Bitcoin is staging a 3 percent gain while altcoins have posted double-digit gains in the same period.

With Bitcoin trading in this super-tight range, investors remain confused as to what can be the next move. Crypto analyst Lark Davis explains that we can expect volatility in the Bitcoin price very soon. Well, it remains to see whether Bitcoin gives a breakout on the upside or the downside.

What’s the mood of the traders?

On Tuesday, February 1, crypto market analysis firm Arcane Research published a report stating that Option traders for Bitcoin are “bearish, but hesitant”. The firm also notes that investors haven’t been this bearish on a long-term basis since the market crash of May 2021.

Back then, Bitcoin has witnessed a similar 50 percent+ correction within a month’s time. The Bitcoin Fear and Greed Index also shows that we are still in a state of fear. However, this has eased up from the levels of “extreme fear”.

The report bases its analysis on the implied volatility of Bitcoin. Options allow traders to bet on the price movements of the underlying asset. Such traders buy the “option” to make the transaction as the asset reaches its target price.

Since Bitcoin is among the volatile assets, its options have higher demand as they have more potential for profit. Also, as the assets are more volatile, the options for them are also more expensive.

Since May 2021, the implied volatility for Bitcoin is currently at its lowest, at 70 percent. Just for reference, the implied volatility in the past had reached 110 percent at one point. Back then, traders were saying that price would either double or cut in half.

Is traders’ risk appetite increasing?

In its latest report, Arcane Research explains that traders aren’t willing to take any bets at this point. It adds: “The high volatility skew suggests they are hesitant to take directional bets. Bitcoin options are generally cheaper than in a long time”.

The volatility skew basically measures the difference in prices between the Bitcoin call and put options. As per Bitcoin’s historical trends, the call options have been usually more expensive than the put options. This represents a bullish behavior suggesting that many people are more interested in buying Bitcoin instead of worrying about selling it.

While moving away from options traders, the macro-market fear is cooling down. Arcane, in its research, calls Bitcoin “the least risky cryptocurrency”. “$40,000 is a key resistance level. With BTC’s slow grind upwards lately, we could see BTC testing this resistance level shortly,” it predicts.

Related: Bitcoin down 45% from all-time high – here’s how traders are handling the price dip

About Author

Bhushan is a FinTech enthusiast and holds a good flair for understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In his free time, he reads thriller fictions novels and sometimes explores his culinary skills.

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