Traders Seek Protection as Bitcoin Price Faces Potential Drop 📉

Deribit's CCO, Luuk Strijers, reports that Puts are experiencing an excess demand and Calls are being sold, while pointing out the decrease in the bitcoin implied volatility index.

Traders of Bitcoin are looking for ways to safeguard themselves from potential drops in price as the deadline for Exchange-Traded Fund (ETF) approaches, according to Deribit.

Traders in the crypto market are taking precautionary measures to protect themselves from a potential decline in the price of bitcoin (BTC), according to the Chief Commercial Officer of Deribit, Luuk Strijers. In an interview with Blocking.net, Strijers highlighted that “puts are overbought and calls are being sold,” indicating the market’s desire for protection against potential price drops.

Put Options vs. Call Options

To understand this situation, it’s important to know what put and call options are. Put options allow buyers to profit from or hedge against a decline in the price of the underlying asset, in this case, bitcoin. On the other hand, call options enable buyers to profit from price rallies. At Deribit, each options contract represents one BTC.

The recent data tracked by Amberdata shows that the one-month BTC call-put skew has turned negative, reaching a low of -2.69% – the first time since October 13. Additionally, the one-week, two-month, and three-month skews have also turned negative, indicating increased demand to hedge against potential bitcoin weakness. Skew measures the difference in demand for calls and puts.

Possible Reasons for Market Concerns

One possible reason behind this behavior is the anticipation of a classic “sell the fact” scenario following the highly-anticipated SEC approval of spot bitcoin ETFs, which is expected to occur later this week on Wednesday. Traders may be worried about a potential delay in approvals or believe that once the news is confirmed, the market may experience a sell-off.

Bitcoin has experienced a significant rally of over 60% since early October, largely driven by expectations that the U.S. Securities and Exchange Commission (SEC) will approve one or more spot ETFs in early 2024. This rally is also based on the old Wall Street adage “buy the rumor, sell the fact,” which reflects the tendency of traders to buy an asset in anticipation of positive news and then close their positions once that news is confirmed.

Spot ETFs, which directly invest in bitcoin instead of its futures, are widely expected to pave the way for mass adoption of the cryptocurrency, which could significantly boost its market valuation. Standard Chartered, in a note to clients, even predicts that there may be $50 billion to $100 billion of inflows into bitcoin ETFs in 2024, potentially pushing BTC towards the $200,000 level by the end of 2025.

Decreasing Volatility

In conjunction with traders seeking protection, Deribit’s forward-looking bitcoin volatility index (BTC DVOL) has dropped by ten points since Monday. This index calculates bitcoin’s annualized 30-day implied volatility or expectations for price turbulence over the next four weeks based on options data. Strijers explains that traders have been selling calls and call spreads in January expiry contracts, leading to the decrease in DVOL.

However, it’s worth noting that short-term implied volatility metrics, such as the seven-day gauge, still remain elevated above 100 or 50 points above the DVOL. This indicates high expectations for price turbulence immediately following the SEC’s decision.

The DVOL has come off ten points since Monday. (Deribit)

Source: Deribit

Q&A: What Else Do Readers Want to Know?

Q: Why are traders specifically concerned about the SEC approval of spot bitcoin ETFs?
A: Traders anticipate a potential sell-off following the approval due to the “sell the fact” scenario. Additionally, the approval of spot ETFs is expected to drive mass adoption of bitcoin and significantly boost its market valuation.

Q: Are there any other factors contributing to the current situation in the market?
A: The rally in bitcoin’s price since October, driven by expectations of ETF approval, has also led to increased caution among traders. The market tends to respond with profit-taking once positive news is confirmed (buy the rumor, sell the fact).

Q: How does the BTC DVOL index help traders anticipate price movements?
A: The BTC DVOL index calculates bitcoin’s expected volatility over the next four weeks based on options data. Traders use this information to gauge potential price turbulence and adjust their strategies accordingly.

Future Outlook and Investment Recommendations

Based on the information available, it is crucial for traders and investors to closely monitor the developments surrounding the SEC’s decision on spot bitcoin ETFs. There is a possibility of increased price volatility, with the potential for a sell-off if the news is confirmed. However, the overall expectation of ETF approval and its positive impact on mass adoption suggests a long-term bullish trend for bitcoin.

As always, it is important to conduct thorough research, consult with financial advisors, and make informed decisions when investing in the cryptocurrency market.

References:

  1. Bitcoin Price: BTC Price Index and Live Chart – Blocking.net
  2. Deribit – Options Trading Platform
  3. Standard Chartered: Research & Product
  4. Amberdata: Real-time Crypto Market Data
  5. SEC: U.S. Securities and Exchange Commission

💡 Did you find this article helpful? Share your thoughts and opinions with us on social media! Let’s discuss the potential impact of SEC approval on the bitcoin market.

We will continue to update Phone&Auto; if you have any questions or suggestions, please contact us!

Share:

Was this article helpful?

93 out of 132 found this helpful

Discover more

Bitcoin

💰 The Battle for Spot Bitcoin ETF Approval Heats Up: Bitwise Takes the Lead 💥

As the deadline for potential approval of Spot Bitcoin ETFs approaches, competition among issuers is intensifying, cr...

Opinion

PSE Trading Macro Commentary Regulatory Boots Land, BTC Remains Bullish

The removal of this major barrier can be considered bullish for Bitcoin, potentially increasing investor trust and ma...

Bitcoin

Japanese Investors Preferring XRP over Bitcoin: The Great Exodus

A recent study has unveiled the growing popularity of Ripple's XRP among Japanese investors, who are opting to invest...

Market

Unmasking the Crypto Market Surge What's Behind Today's Bull Run?

Cryptocurrency market poised for breakthrough, as Bitcoin and altcoins point to potential surge.

Market

🚀 Ethereum ETFs: Approvals Imminent? 🤔

Top market analysts have predicted a significant 70% likelihood of the SEC approving the Ethereum ETF, marking the st...

Market

Bakkt Expanding Globally: Crypto Industry on the Rise!

Exciting news for global expansion! Bakkt, a leading company in its field, will soon be offering its highly sought-af...