Bearish sentiments continue to dominate the Bitcoin market as the leading cryptocurrency recorded a decisive price break below the $100,000 psychological support zone. Following this highly volatile display, blockchain analytics firm Glassnode noted the reaction of the BTC options market.
Bitcoin traders expect more corrections to come
The BTC options market allows traders to obtain the right to buy or sell Bitcoin at a specific price or on or before a certain date. Options allow traders to hedge against risk and bet on volatility, among other features, and are therefore a good indicator of trader sentiment.
Notably, the retest of Bitcoin and its fall below the $100,000 mark was anticipated by the options market, which accumulated put options (BTC sell bets) to protect against downside risk. Following this event, Glassnode notes that traders have responded by now adjusting their positions based on greater uncertainty and fear of further decline.
Evaluating several metrics that guide the options market, Glassnode notes that ATM implied volatility increases as near-term market uncertainty seeps in. The 1-week IV now stands at 51% while the 6-month IV is 48%, indicating that traders expect the next few days/weeks to be choppy.
Meanwhile, the delta 25 skew, which compares the demand for puts and calls (upward bets), is strongly bearish since the 1-week and 1-month skew is around 12.4% and 10% respectively. As a reminder, a positive bias means that put options are more expensive due to high demand as traders fear further price declines.
Traders’ fear of further decline is also reinforced by taker flow data, which shows that recent flows over the past 24 hours have been dominated by put purchases (38.8%). However, it is worth noting that when traders sell these puts, they are hedging their risk by also selling BTC futures. As the spot price falls, hedging continues, ultimately creating a feedback loop that increases volatility and accelerates the price decline.
Market focuses on $95,000 puts
According to Glassnode, the price break below $100,000 shifted the focus of options traders to the $95,000 puts, which saw massive bids. However, even though BTC is still trading above this price, continued demand signals expectations of further declines, as traders continue to accumulate protection against greater losses.
At the time of writing, Bitcoin is trading at $96,311 on the daily chart, reflecting a loss of 3.86% over the past 24 hours. Meanwhile, trading volume is down 12.46% and valued at $99.92 billion.
Featured image from Flickr, chart from Tradingview
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