The Bitcoin options market is showing signs of a potential $60K price retest in February, as professional traders strategically position themselves amid volatile market conditions. Observing the current trends, traders are paying a 13% premium for downside protection, indicating a cautious stance as Bitcoin struggles to hold above the $66,000 support level.
Professional Traders’ Strategies
Despite robust performances in stocks and gold, the Bitcoin market faces challenges, evidenced by a $910 million outflow from Bitcoin ETFs. This reflects increased caution among institutional investors. The price of Bitcoin hit a downward trajectory after nearing $71,000, only to rebound slightly, defending the $66,000 mark through the week.
Market Sentiment and Options Activity
Bitcoin’s options market displays a pronounced preference for downside protection. On Thursday, put options traded at a 13% premium compared to call options. Typically, a delta skew between -6% and +6% suggests balanced demand for both upward and downward strategies. However, the sustained bearish sentiment over the past month highlights a strong inclination towards caution.
Data from Laevitas reveals that the most popular trading strategies on Deribit include the bear diagonal spread, short straddle, and short risk reversal. Each of these strategies offers unique benefits: the bear diagonal spread reduces the cost of bearish bets, the short straddle maximizes profit if Bitcoin’s price remains stable, and the short risk reversal profits from downward moves with minimal upfront costs.
Institutional Demand and Market Stability
The weakening institutional demand, particularly in Bitcoin ETFs, has contributed to uncertainty. These ETFs, often seen as proxies for institutional interest, have witnessed significant outflows, highlighting a cautious approach by large investors. Despite Bitcoin trading 47% below its all-time high, the broader market, including the S&P 500, remains relatively stable, indicating that the risk aversion is predominantly within the cryptocurrency sector.
Additionally, the stablecoin demand in China serves as a barometer for trader sentiment. A current 0.2% discount, an improvement from a 1.4% discount earlier in the week, suggests moderate outflows, yet showcases some resilience in the market.
As traders navigate these turbulent waters, the Bitcoin options market remains a crucial indicator of future price movements, with many anticipating a potential retest of the $60,000 level.
