So far, Bitcoin has seen significant volatility in the recent trading session, indicating weak investor sentiment. Earlier today, the coin surged to $57,300. However, the coin now appears to have lost ground after reaching this level as it is trading at $55,966, down 1.6%.
This increase in volatility suggests that the market is becoming more fearful as traders monitor several key technical levels. However, recent data suggests a shift in traders’ patterns as they seek more defensive strategies.
Analysts from ETC Group a report We have observed a significant increase in open interest in Bitcoin options, indicating a strategic preference for downside protection. This is evidenced by a sharp rise in implied volatility for short-term options, suggesting further price action in the near term.
Insights from the Options Market: A Glimpse into Trader Sentiment
The Bitcoin options trading market has given us a glimpse into the current mood of the market. Recent data from Deribit shows that the call-put ratio — a measure that compares the volume of put options to calls — is above 1, indicating that the market is still bearish based on what traders are doing.
This ratio indicates a larger volume of trades betting on or hedging against a price decline. The fact that we are seeing such a market alignment suggests that a large segment of the market is preparing for the possibility of Bitcoin continuing to fall.
ETC Group analysts agree, pointing to the strange structure of the volatility term: higher implied volatilities in short-term options than in longer-term options—a classic sign of excessive market pessimism.
Analysts pointed out in particular:
Both the increase in call and put volume ratios as well as the 1-month 25 delta option deviation indicated a significant increase in demand for downside protection. The implied volatility of Bitcoin options also increased slightly during the most recent downtrend. The implied volatility of 1-month Bitcoin options is currently around 50.5% per year.
The volatility term structure has also now reversed with short-term options trading at much higher implied volatilities than longer-term options. This tends to be a sign of excessive bearishness in the options market.
Navigating Market Uncertainty
These dynamics are being heavily reflected in the market, with many prominent voices commenting on Bitcoin’s potential trajectory.
Veteran trader Peter Brandt hints that he expects Bitcoin to form a double top pattern, a pattern that suggests a price drop to levels as low as $44,000. However, Brandt also accepts that this pattern may not meet all the requirements of the technical pattern and allows for different price consequences.
A more positive view comes from Timothy Peterson, who said that since Bitcoin could end July above $50,000, it has a “strong chance” of either holding on or even increasing in value by October.
According to Peterson, the chances of Bitcoin trading quarterly in the coming months are 60% and the chance of Bitcoin exceeding its all-time highs in the next three months is 25%.
Featured image created using DALL-E, chart from TradingView