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Will Bitcoin Bounce? Traders Bet on Difficult Q4, Data Show
Will Bitcoin Bounce?
Bitcoin has seen significant volatility in the last trading session so far, suggesting weak investor sentiment. Earlier today, the asset surged as high as $57,300. However, the asset now appears to have run out of steam after reaching this milestone, as it is trading at $55,966, down 1.6%.
This spike in volatility is a sign that the market has become more fearful Traders are watching several key technical levelsHowever, the latest data suggests a shift in traders’ patterns as they seek more defensive strategies.
ETC Group Analysts relationship have noted a substantial increase in open interest in Bitcoin options, indicating a strategic preference for protection from disadvantages. This is illustrated by the spike in implied volatility for short-dated options, indicative of shorter-term price action.
Options Market Insights: A Look at Trader Sentiments
The Bitcoin options market has given a glimpse of the current market mood. Recent data from Deribit shows a put-call ratio, a metric that compares the trading volume of put options to call options, above 1, indicating that the market is still bearish based on what traders are doing.
This ratio indicates a higher volume of trades betting or hedging against a further price decline. The fact that we are seeing this alignment in the market indicates that a sizable segment of the market is preparing for the possibility of Bitcoin continuing its descent.
ETC Group analysts agree with this view, noting the peculiar term structure of volatility: higher implied volatilities in short-term options than in longer-term ones, a traditional characteristic of excessive market pessimism.
Analysts noted in particular:
Both the spike in put-call volume ratios and 1-month 25-delta option skew signaled a significant increase in demand for downside protection. BTC option implied volatilities also increased slightly during the latest downturn. Bitcoin ATM 1-month option implied volatilities are currently around 50.5% y/y
The volatility term structure is also now inverted, with shorter-dated options trading at significantly higher implied volatilities than longer-dated options. This tends to be a sign of excessive bearishness in the options market.
How to navigate market uncertainty
These dynamics are making themselves felt significantly in the market, with many prominent voices commenting on the possible paths of Bitcoin.
Long-time trader Peter Brandt hints that he expects Bitcoin to form a double top, a bearish flag that implies deep price declines even down to $44K. Brandt, however, also accepts that the construction may not meet all the requirements of a technical model and allows different consequences on prices.
A more bullish view comes from Timothy Peterson. He said that since Bitcoin can close July above $50,000, it has a “strong chance” of holding or even increasing in value through October.
According to Peterson, the odds of Bitcoin swinging by a quarter in the next few months are 60%, while the odds of Bitcoin surpassing its all-time highs within the next three months are 25%.
Featured image created with DALL-E, chart from TradingView