Bitcoin options market weak for 6 months due to debt ceiling drama

The options market for Bitcoin (BTC) is indicating a bias towards weakness over a six-month period for the first time since early March, as the drama surrounding the US debt ceiling continues.

According to data from leading crypto options exchange Deribit, the six-month call-put skew, which measures the difference between what investors are willing to pay for bullish calls and bearish puts expiring in 180 days, has declined to -1, the lowest since March 13, and is being tracked by Amberdata.

When referring to options, puts are a type of option that increases in value as prices of the underlying asset fall. This gives the holder the right, but not the obligation, to sell an asset at a predetermined date at a specific price, effectively allowing them to bet against whichever asset that put option tracks.

The one-week, one- and three-month skews also show bias for puts. This trend is consistent with recent flows in the S&P 500 market, which show traders paying up for put volatility.

It’s possible that traders in both crypto and traditional markets are starting to hedge against the US debt ceiling risks, considering Congress is struggling to raise the $31.4 trillion borrowing limit with less than a week until the government runs out of money to meet obligations.

The escalating uncertainty over debt ceiling negotiations has also hit the bond market, where the one-month yield has risen to a record high above 6%, according to data from charting platform TradingView. Rating agency Fitch has put the US on credit watch for a possible downgrade amid the debt ceiling impasse.

The 10-year yield has jumped by over 30 basis points to 3.76% this month, reaching the highest in over two months. The US dollar has picked up a haven bid, pushing the dollar index above 104.00, a 10% monthly appreciation. Bitcoin has dropped 10% to $26,260 this month.

The minutes of the Federal Reserve’s early May meeting, released on Wednesday, have firmed up expectations for another interest rate hike next month, according to ING.

“Macro still dominates,” said Markus Thielen, head of research and strategy at crypto services provider Matrixport, in a note to clients on Thursday. Thielen believes that crypto investors should closely track the 10-year Treasury yield, and that investors should wait until the yields are losing their upside momentum before they buy crypto again.

(12:25 UTC): The sixth paragraph has been updated to include a line about rating agency Fitch’s decision to put the US on watch for a possible downgrade.

Edited by Shaurya Malwa.

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