this time last week, Bitcoin It looked like it might be on the verge of a major short term bullish breakout. The world’s largest cryptocurrency by market capitalization had formed a bullish short-term ascending triangle pattern and looked like it was about to break above the key $25,200-400 area, moving towards the next major area of resistance around $28,000. Was opening the door to accelerate. ,
As things turned out, macro headwinds (a month of strong US data and hawkish Fed speak, which pushed US yields and the dollar higher and US stocks lower) and US regulatory concerns amid the broader crypto crisis kept bulls at bay. . Bitcoin It ended last week down about 3.0% and is already down more than 1.5% this week.
At the current level of low $23,000, Bitcoin Around the mid-point of February’s $21,400-$25,300ish range. And traders/investors seem to be betting that the range bound position will remain for some time. At least, that’s the message Bitcoin Sending options to the market.
Bitcoin volatility expectations fall after failure to break $25K
According to data presented by The Block, Deribits Bitcoin The Volatility Index (DVOL) has dropped sharply over the past week, seemingly a direct result of bitcoin’s latest failure to break above $25,000, which could result in significant (most bullish) volatility in the near-term. DVOL was at 50, down from 60 this time last week. That’s not much more than the record low of 42 in January, just before the crypto rally really begins in 2023.
Separately, implied volatility has also fallen sharply as per the pricing of at-the-money (ATM) options, with short-term volatility expectations experiencing the sharpest move lower. According to data presented by The Block, bitcoin’s 7-day implied volatility stood at 44.55%, down from 60.33% at this time last week. The 30, 60 and 180-day implied volatility has also reduced sharply to 47%, 50% and 53.5% respectively from 57%, 58% and 58% at this time last week.
Mixed options market on BTC price outlook
The picture is mixed in terms of what the markets are saying about the outlook for bitcoin. On the one hand, the ratio between open interest in general for bearish puts and in general for bullish call options sits firmly in favor of the latter group, and to an almost record degree. According to data presented by The Block, the open interest put/call ratio last stood at 0.42, barely above the record low of 0.39 earlier this month.
On the other hand, the bitcoin 25% delta skew for options expiring in 7, 30, 60, 90 and 180 days is close to zero, indicating a neutral position bias. The 25% delta option skew is a popular monitored proxy of the extent to which trading desks are charging investors more or less for the upside or downside protection through put and call options being sold.
A put option gives an investor the right but not the obligation to sell an asset at a predetermined price, while a call option gives an investor the right but not the obligation to buy an asset at a predetermined price. A 25% delta option skew above 0 suggests that desks are charging more for equivalent call options versus puts. This implies that demand for calls versus puts is higher, which can be interpreted as a bullish sign as investors are more eager to hedge (or bet) a security against a rise in prices.
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