By Michael Scott
Crypto options metrics reveal market sentiment points to a decisive bearish outcome for Bitcoin and Ethereum, per Bybit and Block Scholes.
Recent data from crypto derivatives markets signals traders have a growing bearish sentiment. The options activity suggests traders anticipate downside movement in leading digital asset prices, including Bitcoin (BTC) and Ethereum (ETH).
In a recent report, crypto exchange Bybit and analytics platform Block Scholes spotlights a notable rise in the implied volatility levels. The trend spreads across expiration dates range for Bitcoin and Ethereum options.
Unavoidable BTC and ETH Plunge
The report shows the surge in volatility appears pronounced within the short-term options to signal intensified near-term uncertainty. Bybit technical analyst Nathan Thompson explains implied skew as the difference in the implied volatility of puts and calls.
The analyst considers such to reveal the prevailing market sentiment for the Bitcoin and Ethereum options. A higher implied volatility for the calls affirms bullish, while for puts suggests a bearish outcome. The signs emerging from option markets presently suggest a greater downside.
The report notes that the derivatives markets signal a clear skew for the out-of-the-money put options for BTC and ETH in the near term. The trend strongly leans towards a short-term bearish outlook with spot prices struggling to overcome the recent declines.
The report reveals a heightened level of open interest for the Bitcoin put options relative to the calls. Such suggests traders increasingly positioning themselves to shield from potential price downside. The decline in open interest particularly for the perpetual swaps emerges after the recent sell-off.
Analysts have recently cautioned traders that a short-term decline in Bitcoin price is forthcoming. The tumble could challenge the conventional wisdom that cuts in interest rates by the central banks are a bullish moment for the risk assets. A September 2 disclosure by Bitfinex indicated that Bitcoin (BTC) witnessed a 32% rally since setting price lows on August 5. The surge manifests in the open interest for the Bitcoin/stablecoin pair rising by 30%.
Nonetheless, the size of the BTC price leap has faded amid the cooling price momentum. With Bitcoin exchanging hands at $55,233.19%, the BTC surge is nearly 15% from the August 5 low of $49,781.93, per CoinGecko data.
Crypto Market Contraction?
The Bitfinex report signals that the crypto market appears primed to witness a “sell the news” event as Fed rate cuts are increasingly certain. Spot market data backs this observation, particularly at the onset of the US trading sessions as witnessed in the previous week.
Bitfinex analysts’ report dives deeper into the spot market data by spotlighting the plunge in Cumulative Volume Delta (CVD) for Bitcoin trading pairs.
The report shows the CVD data has tumbled approximately 66% since the spot BTC pair set a day peak on August 26. Additionally, the CVD for the BTC perpetual has slid 11%.
Despite the stark difference between the spot and derivatives segment, the CVD is a critical metric to signal differences arising in buying and selling volumes on the crypto exchanges. The CVD helps gause the prevailing market pressure with a decline typically indicative of stronger selling pressure in the market.
The bearish sentiment extends beyond Bitcoin and Ethereum to other altcoins, the report indicates. It shows Solana (SOL) is witnessing consistent negative funding rates, particularly for the perpetual swaps in the previous week.
Thompson points to the rates as suggestive of a bottom forming though SOL could wick lower. Nonetheless, Solana is unlikely to experience a significant plunge from the present levels.
Thompson cautions against the blanket conclusions regarding the Layer 1 and 2 ecosystem. The technical analyst rules out the existence of significant inferences arising in L1 and L2 networks for one to draw relative to the SOL’s current performance. However, he indicates that beyond that fact, the crypto assets have a high correlation.
The report also reveals that following the options’ expiration date on August 30, the open interest for the call options is on a steep decline relative to the puts. Such adds to the recent price correction in the crypto market and the spot price struggles to recover. The experience aggravates the skepticism of price upswing.
The trends observable within the derivatives data have Thompson cautioning the inexperienced traders. The Bybit technical analyst urges them to sit on their hands till the market works out a definitive course.
Thompson notes that bolder traders can establish calls expiring by September 30. He considers that by then, they will have the present uncertainty ease.
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