Will Bitcoin Bounce Back? Traders Place Their Bets on a Rocky Q4, Data Shows
July 08 2024 - 7:00PM
NEWSBTC
So far, Bitcoin has seen significant volatility in the last trading
session, hinting at frail investor sentiment. Earlier today, the
asset soared to as high as $57,300. However, the asset now appears
to have run out of steam after reaching this mark as it trades at
$55,966, down by 1.6%. This surge in volatility is a sign that the
market has become more fearful as traders watch several key
technical levels. However, the latest data suggests a shift in
trader patterns as more defensive strategies are sought. Analysts
from the ETC Group report have noted a substantial increase in the
open interest in Bitcoin options, pointing towards a strategic
preference for downside protection. This is illustrated by the
spike in implied volatility for short-dated options, indicative of
more near-term price action. Related Reading: Bitcoin Starts July
On A Bearish Note, Will CPI Data Change The Narrative This Week?
Insights from the Options Market: A Glimpse into Trader Sentiments
The Bitcoin options trading market has given a glimpse of the
current market mood. Recent data from Deribit show a put-call
ratio—a metric that compares the trading volume of put options
versus call options—higher than 1, indicating that the market is
still bearish based on what traders are doing. This ratio indicates
a higher volume of trades betting on or hedging against a further
price drop. The fact that we are seeing such alignment in the
market indicates a sizable segment of the market is bracing for the
possibility of Bitcoin continuing its descent. ETC Group analysts
agree with such a view, noting the peculiar term structure of
volatility: higher implied volatilities in short-dated options
versus longer-dated ones—a traditional characteristic of excessive
bearishness on the market. The analysts particularly noted: Both
the spike in put-call volume ratios as well as 1-month 25-delta
option skew signalled a significant increase in demand for downside
protection. BTC option implied volatilities have also increased
slightly during the latest leg down. Implied volatilities of
1-month ATM Bitcoin options are currently at around 50.5% p.a. The
term structure of volatility is also inverted now with short-dated
options trading at significantly higher implied volatilities than
longer-dated options. This tends to be a sign of overextended
bearishness in the options market. Navigating Through Market
Uncertainty These dynamics are being felt heavily in the market,
with many prominent voices commenting on potential pathways for
Bitcoin. Long-time trader Peter Brandt hints he expects Bitcoin to
form a double top setup, a bearish flag implying price drawdowns as
deep as even $44K. Brandt, however, also accepts that the
construction might not meet all requirements of a technical pattern
and allows for different price consequences. A more positive view
comes from Timothy Peterson. He said that as Bitcoin can end July
above $50,000, it has a “strong chance” of either hanging onto or
even increasing in value into October. Related Reading: Is Bitcoin
Undervalued Now? Industry Expert Decodes The Market State According
to Peterson, the chances are 60% that Bitcoin could trade quarter
in the coming months and a 25% chance that Bitcoin will cross its
all-time highs within the next three months. Featured image created
with DALL-E, Chart from TradingView
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