A widely followed crypto analyst says that Bitcoin (BTC) is gearing up to bait BTC bulls with another rally to the upside before eventually retracing. In a new strategy session, pseudonymous crypto trader Credible Crypto tells his 354,400 followers on the social media platform X that he would not be surprised if the king crypto […]
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CME Bitcoin futures hit a 2-year high, but options market data reflects investors’ hesitancy.
Bitcoin (BTC) futures open interest at the Chicago Mercantile Exchange (CME) hit an all-time high of $3.65 billion on November 1. This metric considers the value of every contract in play for the remaining calendar months, where buyers (longs) and sellers (shorts) are continually matched.
The number of active large holders surged to a record 122 during the week of Oct. 31, signaling a growing institutional interest in Bitcoin. Notably, the Bitcoin CME futures premium reached its highest level in over two years.
In neutral markets, the annualized premium typically falls within the 5% to 10% range. However, the latest 15% premium for CME Bitcoin futures stands out, indicating a strong demand for long positions. This also raises concerns as some may be relying on the approval of a spot Bitcoin exchange-traded futures (ETF).
Contradicting the bullish sentiment from CME futures, evidence from Bitcoin options markets reveals a growing demand for protective put options. For instance, the put-to-call open interest ratio at the Deribit exchange reached its highest levels in over six months.
The current 1.0 level signifies a balanced open interest between call (buy) and put (sell) options. However, this indicator requires further analysis, as investors could have sold the call option, gaining positive exposure to Bitcoin above a specific price.
Regardless of demand in the derivatives market, Bitcoin's price ultimately relies on spot exchange flows. For instance, the rejection at $36,000 on Nov. 2 led to a 5% correction, bringing the price down to $34,130. Interestingly, the Bitfinex exchange experienced daily net BTC inflows of $300 million during this movement.
The fourth biggest inflow of #Bitcoin to @bitfinex yesterday, was roughly $300M; as soon as the inflow started, #Bitcoin started to trend down.
— James V. Straten (@jimmyvs24) November 3, 2023
Extremely bullish, significant sell pressure, and #Bitcoin is still above $34,000https://t.co/xVpZcXGAZW pic.twitter.com/I72N686HfH
As analyst James Straten highlighted, the whale deposit coincided with the fading momentum of Bitcoin, suggesting a potential connection between these movements. However, the downturn did not breach the $34,000 support, indicating real buyers at that level.
Bitcoin's latest correction occurred while the Russell 2000 Index futures, measuring mid-cap companies in the U.S., gained 2.5% and reached a two-week high. This suggests that Bitcoin's movement was unrelated to the U.S. Federal Reserve's decision to maintain interest rates at 5.25%.
Additionally, the price of gold remained stable at around $1,985 between Nov. 1 and Nov. 3, demonstrating that the world's largest store of value was not affected by the monetary policy announcement. The question remains: how much selling pressure do Bitcoin sellers at $36,000 still hold?
As demonstrated by the $300 million daily net inflow to Bitfinex, merely assessing current deposits at exchanges does not provide a clear picture of short-term sale availability. A lower number of deposited coins may reflect lower investor confidence in exchanges.
Apart from legal challenges against Coinbase and Binance exchanges by the U.S. SEC for unlicensed brokerage operations, the FTX-Alameda Research debacle has stirred more concerns among investors. Recently, U.S. Senator Cynthia Lummis called on the Justice Department to take "swift action" against Binance and Tether for their involvement in facilitating funds for terrorist organizations.
Related: SEC seeks summary judgment in Do Kwon and Terraform Labs case
Lastly, the cryptocurrency market has been impacted by increased returns from traditional fiat fixed income operations, while the once lucrative cryptocurrency yields vanished following the Luna-TerraUSD collapse in May 2022. This movement has had lasting effects on the lending sector, leading to the collapse of several intermediaries, including BlockFi, Voyager, and Celsius.
At the moment, there is undeniable growing institutional demand for Bitcoin derivatives, according to CME futures data. However, this may not be directly related to lower spot availability, making it difficult to predict the supply between $36,000 and $40,000—a level untested since April 2022.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Bitcoin options market positioning and BTC’s daily chart suggest another bull move could be in the making.
The bullish momentum that propelled Bitcoin (BTC) price to a year-to-date high continues into its third week as the price presses toward the $35,000 handle.
Some notable developments that back the current bullish momentum are:
Still a good amount of liquidity for #bitcoin between current price all the way up to $39,500.
— Decentrader (@decentrader) October 26, 2023
Track it here: https://t.co/s1yivlKw5D pic.twitter.com/2i09F7Z9We
Bitcoin’s options data appears confluent with the perspective that further price upside could be in store and suggests a potential extension of last week’s gamma event culminating with BTC price rallying to $35,280. The data also shows the possibility for a gamma event in the $35,000 to $40,000 range, and investor positioning has shifted accordingly.
In the past week, daily option volumes across the derivatives market surged, leading The Big Picture podcast host Joe Kruy to say:
“Paradigm had its best day ever by 70%, in terms of volume.”
Adding to the conversation on the Bitcoin options market, Kelly Greer, Head of America Sales at Galaxy said:
“The flows that we’ve seen reflect everything that is illustrated here and what’s in the market in the listed space. An uptick month over month from Q3 to Q4, interest in the calls that we’ve been highlighting and as we started highlighting this short gamma, the noticeable difference between Bitcoin and ETH in early October, actually was the first time we started talking about this. It was incredible to see that play out once we got the catalyst for spot to break out over its range and see the chasing in spot. And see spot settle down in the mid $30; from when we started talking about it, it was mid-$25s. We’ve seen interest in upside now that vol is higher and calls skews are a little elevated. Seeing those strikes roll out so that peak gamma at the time when we discussed this in early October was around $32K and now it's around $36K to $40K.”
From the perspective of technical analysis, traders are eyeballing the bull pennant pattern, which has formed on the daily timeframe, along with the birth of a golden cross.
In the short-term, the catalyzing move to be on the watch for is whether or not a price move through the $36,300 level leads to escalating pressure on shorts, and if this triggers a rapid uptick in spot buying volumes as options and perpetual futures traders are forced to cover their positions or face liquidation.
Essentially, one would see aggregated short liquidations surge as spot volumes peak, a process that is documented in the chart below.
According to Alex Thorn, Head of Firmwide Research at Galaxy, “the Bitcoin gamma squeeze from last week could happen again if BTC/USD moves higher to $35,750 - $36K.”
Thorn explained that:
“Options dealers will need to buy $20 million in spot BTC for every 1% upside move, which could cause explosiveness if we begin to move up towards those levels.”
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
Bitcoin trading volumes at a five-year low and the S&P 500 reaching its lowest levels in over three months could spell trouble for BTC bulls.
The upcoming $3 billion in Bitcoin (BTC) monthly options expiration on Sept. 29 could prove pivotal for the $26,000 support level.
On one side, Bitcoin’s recognition in China appears to be strengthening, following a judicial report from a Shanghai Court that acknowledged digital currencies as unique and non-replicable.
Conversely, Bitcoin’s spot exchange trading volumes have dwindled to a five-year low, according to on-chain analytics firm CryptoQuant. Analyst Cauê Oliveira pointed out that a significant factor behind this decline in trading activity is the growing fear surrounding the macroeconomic outlook.
Despite the increase in long-term holders, the reduced trading volume poses a risk in terms of unexpected volatility. This means that price swings resulting from liquidations in derivative contracts could potentially cause structural market damage if there aren’t enough active participants.
Furthermore, there is growing unease among traditional financial institutions when it comes to handling crypto-related payments.
JPMorgan Chase, the largest bank in North America, is reportedly prohibiting transfers “related to crypto assets” within its retail division, Chase. The stated rationale is to protect against potential involvement in fraudulent or scam activities.
Lastly, Bitcoin holders are feeling apprehensive as the Dollar Strength Index (DXY), a measure of the dollar’s strength against other currencies, reached 106 on Sept. 26, its highest level in 10 months.
Historically, this index exhibits an inverse correlation with risk-on assets, tending to rise when investors seek safety in cash positions.
The open interest for the Sep. 29 options expiration currently stands at $3 billion. However, it is expected that the final amount will be lower due to bullish expectations of Bitcoin’s price reaching $27,000 or higher.
The unsuccessful attempt to break above $27,200 on Sept. 19 may have contributed to overconfidence among Bitcoin investors.
The 0.58 put-to-call ratio reflects the imbalance between the $1.9 billion in call (buy) open interest and the $1.1 billion in put (sell) options.
However, if Bitcoin’s price remains near $26,300 at 8:00 am UTC on Aug. 25, only $120 million worth of the call (buy) options will be available. This difference happens because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC’s price is below this level on expiry.
Below are the four likeliest scenarios based on the current price action. The number of options contracts available on Sept. 29 for call (buy) and put (sell) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit.
This crude estimate disregards more complex investment strategies. For instance, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.
It’s worth noting that for the bulls to level the playing field ahead of the monthly expiration, they need to achieve a 3.2% price increase from $26,200. In contrast, the bears only need a modest 1% correction below $26,000 to gain a $430-million advantage on Sept. 29.
Related: Crypto bills could be delayed as many prepare for US gov’t shutdown
Given that Bitcoin traded below the $26,000 support level between Sept. 1 and Sept. 11, it wouldn’t be surprising if this level were breached again as the options expiration approaches. Moreover, investor sentiment is becoming increasingly risk-averse, as evidenced by the S&P 500 dropping to its lowest level since June.
Consequently, unless there is significant news or an event that strongly favors Bitcoin bulls, the likelihood of BTC’s price breaking below $26,000 by Sept. 29 remains high.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Professional traders can hedge their Bitcoin bets using the iron condor options strategy as Q2 earnings' season comes into play.
The stock market can offer valuable insights into possible Bitcoin (BTC) price movements as a big potential trigger is expected this month.
Notably, Q2 earnings' numbers are expected from some of the largest companies in the world in July, including:
The S&P 500 companies account for an aggregate $36.5 trillion in market capitalization, so it makes sense to expect a positive impact on Bitcoin’s price if the earnings season sustains modest growth.
In other words, investors’ appetite for risk-on assets will increase if the odds of an imminent recession are reduced.
Traders who have been calling for a global economic slowdown will have a chance to profit if those companies fail to deliver earnings growth, further adding uncertainty to the economies. Governments rely heavily on taxes, both from companies and from consumers, so a weak earnings season represents a serious threat.
Related: How to financially prepare for a recession
Investors are concerned that companies profitability could decline due to the unprecedented tightening of monetary policy by the U.S. Federal Reserve and macroeconomic concerns. Businesses are being forced to reduce hiring and use cost-cutting strategies due to persistent inflation.
Still, the U.S. economy has displayed resilience, as evident by the latest 0.3% retail sales growth month-over-month in May, while economists had been expecting a decline. The retail results demonstrated that decreasing oil prices may be allowing consumers to spend more money on other goods.
Such a scenario explains why professional traders have been using the bullish "iron condor" strategy to maximize gains with limited risk if Bitcoin trades above $31,550 in July.
Buying Bitcoin futures pays off during bull markets, but the issue lies in dealing with liquidations when BTC’s price goes down. This is why professional traders use options strategies to maximize their gains and limit their losses.
Related: Crypto derivatives 101: A beginner’s guide on crypto futures, crypto options and perpetual contracts
The skewed iron condor strategy can yield profits above $31,550 by the end of July while limiting losses if the expiry price is below $31,000.
It is worth noting that Bitcoin traded at $30,520 when the pricing for this model took place.
The call option gives its holder the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium.
Meanwhile, the put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling a put offers exposure to the upside in prices.
The iron condor consists of selling the call and put options at the same expiry price and date. The above example has been set using the July 28 contracts, but it can be adapted for other timeframes.
Related: Major US banks get passing grade in ‘severe recession’ stress test
As depicted above, the target profit range is $31,550 (3% above the current price) to $38,000 (24.5% above the current price).
To initiate the trade, the investor needs to short (sell) 1.5 contracts of the $33,000 call option and three contracts of the $33,000 put option. Then, they must repeat the procedure for the $36,000 options, using the same expiry month.
Buying 4.8 contracts of the $31,000 put option to protect from an eventual downside is also required. Lastly, one needs to purchase 3.7 contracts of the $38,000 call option to limit losses above the level.
This strategy’s net profits peak at 0.206 BTC ($6,290 at current prices) between $33,000 and $36,000, but they remain above 0.087 BTC ($2,655 at current prices) if Bitcoin trades in the $32,150 and $37,150 range.
The investment required to open this skewed iron condor strategy is the maximum loss (0.087 BTC, or $2,655) which will occur if Bitcoin trades below $31,000 on July 28.
The benefit of this trade is that a wide target area is covered while providing a potential 238% return versus the potential loss. In essence, it provides a leverage opportunity without the liquidation risks typical of futures contracts.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
Bitcoin ETF requests, miners' sell pressure, and regulatory hurdles create uncertainty for the $31,000 BTC price resistance.
The $4.7 billion Bitcoin (BTC) monthly options expiry on June 30 might play a decisive role in determining whether the $30,000 price will consolidate as long-term support and open room for further bullish momentum.
Many analysts consider Bitcoin's recent breakout above $27,000 a bet on the multiple spot Bitcoin exchange-traded fund (ETF) request applications, including those of BlackRock and ARK Invest.
The news also fueled expectations for Grayscale to be able to convert its Grayscale Bitcoin Trust (GBTC) to a Bitcoin ETF.
On the other hand, Bitcoin bears will try to take advantage of macroeconomic and regulatory headwinds, including exchanges implementing mandatory Know Your Customer (KYC) procedures.
On June 28, KuCoin announced the upcoming KYC system upgrade in a move to increase compliance with global Anti-Money Laundering regulations.
Moreover, there’s increasing concern over the impact of miners' sell pressure as the network hashrate reached 400 exahashes per second. The Glassnode analytics firm noted that miners sent an all-time high in BTC revenue percentage to exchanges over the past week, totaling $128 million. Curiously, the movement mimics spikes seen during the 2021 bull run as miners took profits.
Additionally, during the European Central Bank forum in Portugal, Federal Reserve (Fed) Chair Jerome Powell warned that most policymakers expect two more rate hikes this year. According to the CME FedWatch Tool, investors are pricing in 82% odds of a 25 basis point interest rate increase on July 26.
Bitcoin price last flirted with the $31,000 level on June 27, but the resistance proved stronger than anticipated. The subsequent correction to $30,000 supports the thesis of sideways trading in the short term as investors evaluate the impacts of additional interest rate increases by the Fed.
Such a restrictive scenario for the global economy might explain why some Bitcoin traders decided to take profits, which limited the price upside.
The open interest for the June 30 options expiry is $4.7 billion, but the actual figure will be lower since bulls were expecting $32,000 or higher price levels. These traders got excessively optimistic after Bitcoin’s price rallied 25.5% between June 15 and June 23, testing the $31,000 resistance.
The 0.56 put-to-call ratio reflects the imbalance between the $3.1 million in call (buy) open interest and the $1.7 million in put (sell) options.
But if Bitcoin’s price remains near $30,500 at 8:00 am UTC on June 30, only $630 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $31,000 or $32,000 is useless if BTC trades below that level on expiry.
Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 30 for call (bull) and put (bear) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit.
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.
For instance, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.
Related: Will $30K be a new springboard for Bitcoin bulls?
Consequently, it will come down to whether BTC price bears are willing to risk exposure while a potential spot Bitcoin ETF approval is being analyzed by the SEC.
Although it is impossible to estimate the potential inflow or the timing of such an event, it paves the way for bulls to secure a $440 million profit by keeping Bitcoin price above $30,000 in the short term.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
BTC’s historically low volatility could abruptly change in June, with long-term holders making moves and options traders showing an uptick in bearish positions.
Bitcoin’s volatility has dropped to historically low levels thanks to macroeconomic uncertainty and low market liquidity. However, on-chain and options market data allude to incoming volatility in June.
The Bitcoin Volatility Index, which measures the daily fluctuations in Bitcoin’s (BTC) price, shows that the 30-day volatility in Bitcoin’s price was 1.52%, which is less than half of the yearly averages across Bitcoin’s history, with values usually above 4%.
According to Glassnode, the expectation of volatility is a “logical conclusion” based on the fact that low volatility levels were only seen for 19.3% of Bitcoin’s price history.
The latest weekly update from the on-chain analytics firm shows that Glassnode’s monthly realized volatility metric for Bitcoin slipped below the lower bounds of the historical Bollinger Band, suggesting an incoming uptick in volatility.
The on-chain transfer volumes of Bitcoin across cryptocurrency exchanges dropped to historically low levels. The price is also trading near short-term holder bias, indicating a “balanced position of profit and loss for new investors” that bought coins during and after the 2021-2022 bull cycle, according to the report. Currently, 50% of new investors are in profit, with the rest in loss.
However, while the short-term holders reached equilibrium levels, long-term holders were seen making a move in the recent correction, which underpins volatility, according to the analysts.
Glassnode categorizes coins older than 155 days in a single wallet under long-term holder supply.
The gray bars in the image below show the long-term holder (LTH) binary spending indicator, which tracks whether LTH spending averaged over the last seven days is adequate to decrease their total holdings.
It shows previous instances when LTH spending increased, which was usually followed by a volatility uptick.
Bitcoin’s recent correction saw a minor downtick in the indicator, “suggesting 4-of-7 days experienced a net divestment by LTHs, which is a level similar to exit liquidity events seen YTD.”
The analysts expect a bout of volatility to reach an equilibrium level, where the market moves primarily due to the accumulation or distribution of long-term holder supply.
The options market data indicates a similar theory about impending volatility.
The latest options market expiry for May turned out to be a dull event, despite a major expiration of $2.3 billion in notional value. However, prolonged compression of volatility can indicate a big incoming move in terms of price.
Bitfinex’s latest Alpha report shows that the DVOL index, which represents the market’s expectation of 30-day future implied Bitcoin volatility, slipped to 45 from a reading of 50 right before the expiry, which represents a yearly low.
Implied volatility in options refers to the market’s expectation of the future volatility of the underlying asset, as reflected in the prices of options.
Related: Debt ceiling, bank crisis set for 'powder keg' explosion — BitMEX co-founder
Bitfinex analysts said that low expectations of volatility can occur due to “upcoming events that are expected to move the market” or “increased uncertainty or risk aversion among market participants.”
Currently, the options traders are showing risk aversion and have increased their bearish positions, moving from May to June.
The put-to-call ratio for Bitcoin options increased from 0.38 to 0.50. A higher weight of put options shows that traders are increasingly turning bearish on Bitcoin.
Analysts at Bitfinex currently expect “potential market turbulence and short-term price fluctuations” in June, especially close to the expiry toward the month’s end.
The potential price levels that can act as a magnet according to options market positioning are the maximum pain levels for May and June’s expiration at $27,000 and $24,000, respectively.
Maximum pain, also known as max pain or option pain, is a concept used in options trading and refers to the price at which the buyers incur maximum losses.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
On-chain data shows that an imminent Bitcoin rally could drive its price up to $32,000, says Glassnode lead analyst James Check.
After a long period of unusually low volatility, Bitcoin’s (BTC) next major price move is likely imminent and could drive BTC to $32,000, according to James Check, lead on-chain analyst at Glassnode. That price level is where Bitcoin’s “true cost basis is sitting,” Check explained in an exclusive interview with Cointelegraph.
To calculate Bitcoin’s average cost basis — the average price at which BTC was bought — Check and his team removed coins that are lost forever from the calculation and focused on active Bitcoin investors.
“It’s where the mean reversion level would be, so a rally to that level, to be honest, wouldn’t surprise me,” he said.
Despite this bullish scenario, Check also pointed out that a large number of investors are likely tired of the bear market and waiting for Bitcoin to reach that level before selling, thus putting pressure on the price.
“That's an area where you start getting more resistance,” he stated.
To find out more about the chances of an upcoming Bitcoin rally, check the full interview on our YouTube channel — and don’t forget to subscribe!
Given the uncertainty in the macroeconomic environment, Bitcoin price bulls have no reason to bet against a six-week descending wedge pattern.
A bearish market structure has been pressuring cryptocurrencies’ prices for the past six weeks, driving the total market capitalization to its lowest level in two months at $1.13 trillion. According to two derivative metrics, crypto bulls will have a hard time to break the downtrend, even though analyzing a shorter timeframe provides a neutral view with Bitcoin (BTC), Ether (ETH) and BNB, on average, gaining 0.3% between May 12 and May 19.
Notice that the descending wedge formation initiated in mid-April could last until July, indicating that an eventual break to the upside would require an extra effort from the bulls.
Furthermore, there’s the impending U.S. debt ceiling standoff, as the U.S. Treasury is quickly running out of cash.
Even if the majority of investors believe that the Biden administration will be able to strike a deal before the effective default of its debt, no one can exclude the possibility of a government shutdown and subsequent default.
Not even gold, which used to be considered the world’s safest asset class, has been immune to the recent correction, as the precious metal traded down from $2,050 on May 4 to the present $1,980 level.
Related: Bitcoin, gold and the debt ceiling — Does something have to give?
Circle, the company behind the USDC stablecoin, has ditched $8.7 billion in Treasuries maturing in longer than 30 days for short-term bonds and collateralized loans at banking giants such as Goldman Sachs and Royal Bank of Canada.
According to Markets Insider, a Circle representative stated that:
“The inclusion of these highly liquid assets also provides additional protection for the USDC reserve in the unlikely event of a U.S. debt default.”
The stablecoin DAI, managed by the decentralized organization MakerDAO, approved in March an increase to its portfolio holdings of the U.S. Treasuries to $1.25 billion to “take advantage of the current yield environment and generate further revenue”.
Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours.
A positive funding rate indicates that longs (buyers) demand more leverage. Still, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.
The seven-day funding rate for BTC and ETH was neutral, indicating balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. Curiously, even Litecoin (LTC) displayed no excessive long demand after a 14.5% weekly rally.
To exclude externalities that might have solely impacted futures markets, traders can gauge the market’s sentiment by measuring whether more activity is going through call (buy) options or put (sell) options.
The expiration of options can add volatility to Bitcoin’s price, which resulted in an $80-million advantage for bears in the latest May 19 expiry.
A 0.70 put-to-call ratio indicates that put option open interest lags the more bullish calls and is, therefore, bullish. In contrast, a 1.40 indicator favors put options, which can be deemed bearish.
The put-to-call ratio for Bitcoin options volume has been below 1.0 for the past couple of weeks, indicating a higher preference for neutral-to-bullish call options. More importantly, even as Bitcoin briefly corrected down to $26,800 on May 12, there was no significant surge in demand for the protective put options.
The options market shows whales and market makers unwilling to take protective puts even after Bitcoin crashed 8.3% between May 10 and May 12.
However, given the balanced demand on futures markets, traders seem hesitant to place additional bets until there’s more clarity on the U.S. debt standoff.
Less than two weeks remain until June 1, when the U.S. Treasury Department has warned that the federal government could be unable to pay its debts.
Related: U.S. debt ceiling crisis: bullish or bearish for Bitcoin?
It is unclear whether the total market capitalization will be able to break from the descending wedge formation. From an optimistic perspective, professional traders are not using derivatives to bet on a catastrophic scenario.
On the other hand, there seems to be no rationale for th bulls to jump the gun and place bets on a speedy crypto market recovery given the uncertainty in the macroeconomic environment. So, ultimately, bears are in a comfortable place according to derivatives metrics.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
A perfect storm is forming for higher volatility. Learn how to profit from BTC price moves on either side.
Here’s how Bitcoin (BTC) traders can profit whether its price move up or down 10% within 55 days.
Traditional market analysts have started calling for a volatility spike due to the United States government debt discussion.
Moreover, signs of stress coming from the banking sector surprised investors after the U.S. Dollar Index (DXY), which measures the U.S. dollar against a basket of foreign currencies, reached its lowest level in 12 months at 101 on May 4.
Stock market and macro analyst Markets & Mayhem posted a chart from Deutsche Bank that correlates historical government spending and debt concerns with spikes in the stock market volatility.
Volatility could rise into a government debt debacle as the kabuki theater carries on
— Markets & Mayhem (@Mayhem4Markets) May 1, 2023
Source: Deutsche pic.twitter.com/fmJVKvUZvc
U.S. Treasury Secretary Janet Yellen has warned that the government may run out of cash by June if Congress fails to raise the debt ceiling. According to the BBC, President Joe Biden has called a meeting of congressional leaders on the issue for May 9.
Government officials said the overspending is partly due to lower-than-expected income tax receipts, which are typical of recession periods.
It is worth noting that the volatility indicator neither dictates whether the market has been gaining strength nor anticipates eventual crashes.
The index calculation does not account for price gains or losses, only directional changes. Thus, if the volatility reaches historically low levels, it merely reflects that the asset has displayed a low amplitude of daily price fluctuations.
Notice how Bitcoin’s 40-day historical volatility does not usually remain below 40% for long. That information, coupled with the traditional markets’ stress caused by the regional banking crisis and the debt ceiling discussion might be brewing the perfect storm for a sharp volatility spike.
While one can benefit from the expectation of higher volatility for the next couple of weeks, most investors are unwilling to take directional bets, meaning they have no confidence in whether the market will move up or down.
However, there is an options strategy that fits this scenario and allows investors to profit from a strong move on either side.
The reverse (short) iron butterfly is a limited-risk, limited-profit options trading strategy. It’s important to remember that options have a set expiration date, meaning the price change must happen during the defined period.
The option prices above were taken on May 5, with Bitcoin trading at $29,172. All options listed are for the June 30 expiry, but this strategy can also be used using a different time frame.
The suggested non-directional strategy consists of selling 9.2 BTC contracts of the $26,000 put options while simultaneously selling 12.2 call options with a $33,000 strike. To finalize the trade, one should buy 13.5 contracts of $30,000 call options and another 8 contracts of $30,000 put options.
While this call option gives the buyer the right to acquire an asset, the contract seller gets a (potential) negative exposure. To fully protect from market oscillations, one must deposit 0.90 BTC (roughly $26,250), representing the investors’ maximum loss.
For this investor to profit, one needs Bitcoin’s price to be below $27,000 on June 30 (down 7.5%) or above $32,150 (up 10.2%). In essence, the trade has a hugely profitable area, but loses over twice the potential gain if Bitcoin fails to move either way considerably.
The maximum payout is 0.337 BTC (roughly $9,830), but if a trader is confident that volatility is right around the corner, a 10% move in 55 days seems quite feasible.
Notice that the investor can revert the operation before the options expiry, preferably right after a strong Bitcoin price move. All one needs to do is buy back the two options that have been sold and sell the other two that were previously bought.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
