The recent volatility seen in the Bitcoin options market suggests that investors are starting to believe that BTC will remain trapped within its current narrow price range.
Options traders have become more cautious, even defensive, after a sharp decline in the fourth quarter that wiped more than $1 trillion of value from the digital asset market.
Over the weekend, the price of Bitcoin fell as much as 4.4% to $88,135, falling below the midpoint of the $100,000-$80,000 channel it has held for the past three weeks. This reflects the weakening of risk appetite in the broader cryptocurrency market, which accounts for approximately 60% of cryptocurrency market capitalization.
According to Coinbase’s Deribit data, open interest in options futures at the end of December is significantly outpacing long-term contracts. This is primarily due to investors selling options to generate premium income in anticipation of low near-term volatility. “There’s a clear near-term band trading trend in Bitcoin options, with volatility being sold and both the upper and lower wings fading,” said Wintermute strategist Jasper De Maere. However, the continued strong demand for long-term options suggests that “while stability is expected in the short term, the door is open for larger movements in the future,” De Maere said.
Bitcoin, which hit a record high above $126,000, has been depressed sharply over the past two months by forced liquidations and a collapse in retail interest. This has impacted not only prices but also institutional investor behavior. BlackRock’s iShares Bitcoin Trust fund is recording its longest weekly outflow streak since its launch in January 2024. More than $2.7 billion in outflows were recorded in the five weeks leading up to November 28th, with an additional $113 million in outflows on Thursday alone, marking the fund’s sixth week of net negative inflows. This chart suggests that even as prices remain stable, institutional demand remains pent-up.
Bitcoin’s year-over-year lag behind the S&P 500 marks a rupture almost unprecedented in the last decade. While Trump’s re-election is expected to usher in a more favorable regulatory environment for crypto, the market has yet to price in this momentum. The volatile nature of the sector has given rise to terms like “crypto winter”; the last major crypto winter lasted from late 2021 to 2023, with Bitcoin losing more than 70% of its value from peak to trough.
The traditional correlation between stocks and Bitcoin has also weakened this year. Low interest rates had propelled both markets upward during the pandemic, but this correlation has been severely disrupted as we enter 2025.
The futures picture is similarly bleak. Bitcoin futures funding rates have turned negative, suggesting that bearish positions are being forced to pay off long investors. Coinglass data confirms the market’s short-term bearish bias.
Pressure continues on the altcoin front. Investors are becoming more defensive in ETH options, with downside hedging interest remaining consistently strong, while the upside is only selectively demanded.
*This is not investment advice.
Source: https://en.bitcoinsistemi.com/which-way-will-the-wind-blow-for-bitcoin-analysts-say-theres-a-preparation-going-on/
