Bitcoin’s market continues to be dominated by bearish attitudes as the cryptocurrency aims to register a 5th consecutive month of losses. At the moment, the price is consolidating under the $70,000 level, and market bulls are struggling to make a definitive breakout above this resistance zone.
The Bitcoin Options Market shows traders expect less volatility despite the choppy market.
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Bitcoin Volatility expectations fall, and market panic is fading
It is a good idea to get in touch with someone who can help you. X post Glassnode released its Bitcoin market report on the 20th of February, analysing traders’ sentiment and behavior in light of current market conditions. According to the market analysis firm, there has been a noticeable change in expectations for volatility that is helping to reduce current negative sentiments.
Glassnode analysts report that the implied volatility of At-the money (ATM), across all maturities, has dropped significantly to 48%. This is a significant drop from recent highs. ATM IV is a reflection of the expected market move. The decline in volatility suggests that traders no longer expect a price crash.
This shift has been reinforced by changes in DVOL (an indicator that measures aggregate implied volatility). DVOL, which initially spiked during market liquidation late January/early Feb, has dropped by approximately 10 volatility points in the last two weeks. This indicates that the extreme hedging is easing.
The short-term risk premium has also turned positive. The one-week volatility risk premium (VRP) plunged earlier this month to a deeply negative level of -45. This was because realized volatility outstripped implied. Since then, the implied volatility repriced to a higher level while the realized volatility stabilized. Short-dated options have regained a premium.
The metrics combined suggest that there is a reset in panic pricing and the expectation of large, volatile changes has declined.
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Other metrics indicate that traders maintain a defensive position in the market despite a cooling of volatility expectations.
Even though the Put Skew has moved off of the extreme hedge, it still remains elevated. The 25-delta one-week skew, which had bottomed near 7 vol points in the previous week, has now rebounded to 14 vol. This recovery shows that, while the extreme fears have subsided in recent months, there is still a strong demand for insurance against downside risks.
Data on taker flows also shows a similar picture. Last week, puts accounted for two thirds of the options trading activity. Outright buys of put contracts constituted about 34%. This suggests market participants may not be fully convinced that the correction is over.
Options market shows a measured outlook. Although traders hedge to avoid another potential downside, they still expect immediate turmoil. Bitcoin was trading at $66,628 as of press time. This is a 0.92 percent increase in 24 hours.
Glassnode’s data shows dealers are generally short gamma over a broad price range, between $70,000 to $58,000. This could lead to increased selling pressure in the event that Bitcoin continues its downward trend. A large concentration of gamma around $75,000 indicates positioning for potential recovery.
Charts from Tradingview and Flickr.
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Source: www.newsbtc.com
