• Bitcoin failed to break above $25,000, leading to a 3% drop in price last week and another 1.5% lower this week.
• Bitcoin options markets have responded by dropping volatility expectations sharply, with short-term volatility expectations experiencing the sharpest move lower.
• Options markets are mixed on the outlook for Bitcoin, with open interest normally bearish Put and normally bullish Call options sitting firmly in favour of the latter group.
Bitcoin Fails to Break $25K
This time last week, Bitcoin looked like it might be on the verge of mustering a key short-term bullish breakout. The world’s largest cryptocurrency by market capitalization had formed a bullish short-term ascending triangle pattern and looked like it was about to break above the key $25,200-400 area, opening the door for a quick run higher towards the next major area of resistance around $28,000. However, a combination of macro headwinds (a month of strong US data and hawkish Fed speak that pushed US yields and the dollar higher and US stocks lower) and US regulatory concerns amid a widening crypto crackdown kept the bulls at bay. As a result, Bitcoin ended up falling about 3.0% last week and is already another just over 1.5% lower this week at current levels in the low $23,000s – around the mid-point of February’s $21,400-$25,300ish range.
Volatility Expectations Fall Sharply
As traders/investors bet that rangebound conditions will ensue for some time going forward; Bitcoin options markets have responded by dropping volatility expectations sharply. According to data presented by The Block, Deribit’s Bitcoin Volatility Index (DVOL) has dropped from 60 this time last week to 50 – not far above record lows printed back in January at 42; while Implied Volatility according to ATM options has also dropped sharply with 7-day Implied Volatility down from 60.33% this time last week to 44.55%. 30-, 60-, 180-Day Implied Volatilities are all also down sharply from their respective levels this time last week as well.
Options Markets Mixed on BTC Price Outlook
In terms of what options markets are saying about the outlook for Bitcoin going forward; they remain mixed with open interest normally bearish Put versus normally bullish Call options sitting firmly in favour of Calls almost to a record degree – suggesting that many traders remain confident that prices can rebound in coming weeks or months ahead if macro headwinds subside or if any positive news emerges regarding regulation or adoption trends etc..
What Does This Mean?
The drop in volatility expectations suggests that traders/investors are betting that rangebound conditions will ensue for some time going forward – at least until more clarity is provided regarding macro headwinds & regulations or more positive news emerges regarding adoption trends etc.. That being said however; there is still confidence amongst many option traders that prices could rebound significantly should such events come into fruition further down line – suggesting that those who believe we may have seen peak crypto prices for 2021 might be premature in doing so just yet!
In conclusion then; while its clear that near term upside momentum has been stunted somewhat due to recent macro headwinds & regulatory issues; there is still confidence amongst many option traders that prices could rebound significantly should these issues ultimately prove temporary further down line – leaving room yet then for us potentially seeing even greater highs than those seen earlier this year!