By George Ward
The crypto options market is flashing a warning sign for Bitcoin as Silvergate winds down its operations. Silvergate, a popular crypto custodian and digital asset exchange, recently announced it would no longer offer crypto-related services, citing regulatory uncertainty.
This news comes when the crypto options market shows bearish sentiment.
Silvergate Bank’s Situation Sparks Fears
Silvergate Bank’s decision to shut down services due to the worsening economic situation has caused worry among digital asset investors. This, in turn, has caused a surge in demand for derivatives that provide insurance against huge drops in the price of primary tokens.
The 30-day Bitcoin skew index indicates that investors strongly prefer bearish put options, which has reached its highest in two months. Hence, Investors express concern about an extended decrease in the value of Bitcoin as the 25-day skew for BTC options shifts to favoring put options.
This is likely due to investors hedging their long spot or futures positions to gain from the potential bear market. As reported by Paradigm, an institutional liquidity platform for crypto derivatives traders, this change in the 25-day skew for BTC options may indicate that the upward momentum in the Bitcoin market has been lost.
A call option grants the buyer the privilege to purchase the underlying asset at a predetermined price on or before a specific date, with no obligation. Conversely, a put option gives the owner the authority to sell. In contrast, a long position is when an individual owns the asset.
The decreased liquidity for U.S. dollar trading pairs due to the recent decline in the Bitcoin price makes holding put options a more reasonable choice since a small sell order can have a significant impact.
Put Options Justified As Bitcoin Declines To 3-Week Low
The recent developments in the crypt industry and other macroeconomic factors have caused Bitcoin to decrease to a three-week low of under $21,000, a decline from the maximum of $25,000 it achieved last month.
The Bitcoin skew for the last 30 days has plummeted to -3.62, the lowest since January 7th, according to data from Amberdata. The 60 and 90-day metrics have also plummeted by 2.73% and 1.58%, respectively, their lowest levels in two months.
A similar tendency is visible in derivatives associated with Ethereum, the second leading crypto asset. However, there is much optimism for ETH as the Shanghai update event date draws close.