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Bitcoin looks set to end Wednesday’s session largely unchanged in the mid $24,000 range, giving market participants the time they need to catch their breath after seven days of intense price action. Bitcoin just dipped below $22,000 for the first time in over three weeks, weighing alongside the fall in US stocks amid fears of Fed tightening.
A series of high-profile US bank collapses (Silvergate, SVB, and undersigned banks) will trigger further risk-off flows, driving BTC price down to $19,500 by Friday. Time is about 2 months.
However, the US authorities’ aggressive response to protect deposits and launch new bank liquidity programs – which helped USDC, a key part of the crypto market plumbing – return to the $1 peg last week. Helped Bitcoin end on a strong footing.
Expectations that the risk of a banking crisis will deter significant further rate hikes by the Fed, and talk that cryptocurrencies like Bitcoin are a safe haven against troubles in the traditional financial system, have pushed bitcoin to the mid-$26,500 range. By Tuesday that helped push me up.
This is Bitcoin’s highest level since June last year, and at its peak this week it was up more than 35% from last week’s sub-$20,000 low. With Bitcoin swinging from his 2-month low to his 9-month high in just a few days, traders are betting that more volatility is likely. At least, that’s due to the Bitcoin options market. Let’s take a deeper look.
Traders are raising Bitcoin volatility bets
Last week, Deribit’s Bitcoin Volatility Index (DVOL) surged from around 50 (not well above its historic low) to around 62, its highest level in two months. This is the area when BTC surges above $20,000. Deribit is a leading cryptocurrency derivatives exchange.
And it’s still well below last year’s post-FTX collapse highs in the 114 area. But it still shows investors are positioning for a more eventful picture ahead. And given the key resistance area of $25,200 to $400 that Bitcoin has breached this week, it makes sense, with technologists looking to move to the next major resistance area near $28,000 and even above $30,000. We believe it opens the door to a potentially speedy rally.
Meanwhile, implied volatility is also rising, according to at-the-money (ATM) bitcoin option prices. ATM implied volatility for options expiring in seven days reached 67.44% on Tuesday, his highest level since mid-January, up from a previous monthly low in the 42% area. ATM implied volatilities with options expiring in 30, 90 and 180 days also rose to multi-week highs.
Traders Again Neutral on BTC Price Outlook
When Bitcoin dipped below $20,000 for the first time in two months last week, the BTC price outlook was – A year between 5 and -10.
Delta option skew of 25% is representative of the extent to which the trading desk is over- or under-billed for upside or downside protection via the put and call options it sells to investors. widely monitored as a good indicator. A put option gives the investor the right, but not the obligation, to sell the asset at a specified price, while a call option gives the investor the right, but not the obligation, to buy the asset at a specified price.
A delta option skew of 25% above 0 suggests that the desk is charging more for puts over comparable call options. This means that the demand for calls is stronger than for puts. This can be interpreted as a bullish sign as investors are keen to secure protection (or bets) against rising prices.
However, the options market has returned to a broadly neutral view of the market after BTC prices bounced back to a nine-month high. The delta skew of 25% of Bitcoin options expiring at 7, 30, 60, 90 and 180 days are all close to 0.
However, it is Deribit’s ratio of put and call options that sends a more bearish signal. Bitcoin’s put to call option open interest ratio was at 0.54 on Wednesday, the highest level of the year and up from a recent low below 0.40. A ratio less than 1 means that investors prefer to hold call options (betting that prices will go up) over put options (betting that prices will go down).