Bitcoin (BTC) Options Market Hints Major Downside Risks Over Next 3-6 Months

The world’s largest cryptocurrency Bitcoin (BTC) continues to face strong selling pressure. On Monday, May 23, the BTC price tanked 3% moving under $30,000 despite the U.S. equity market moving higher.

Bitcoin continues to trade in the range of $28,500-$31,500 for a while now. Glassnode data shows that the BTC market has traded lower for eight consecutive weeks marking it the longest “continuous string of red weekly candles in history”.

Furthermore, a look into the Bitcoin derivatives market suggests the risks of further downside, at least over the next three to six months. In its latest report, on-chain data provider Glassnode explains that the Bitcoin options market continues to price in the near-term uncertainty.

During the market sell-off last week, the Bitcoin options implied volatility surged significantly. Glassnode explains:

Short-dated at-the-money options saw IV more than double, from 50% to 110%, whilst 6-month dated option IV jumped to 75%. This is a break higher from what has been a long period of very low implied IV levels.

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Bitcoin Put Options Have Higher Preference

With a very strong bearish sentiment, the Bitcoin put options have a very strong preference looking into the end of Q2 2022. Just over the last two weeks, the Bitcoin put/call ratio for open interest has surged from 50% to 70%. It means that the market is preparing to hedge further downside risks.

By the end of Q2, there are strong put options with strike prices of $25k, $20k, and $15k. At the same time, the open call options are very low. Thus, by the mid of this year, investors have a strong preference for hedging risks thereby speculating further downside price action.

On a long-term basis i.e. by the end of the year, the options interest setup for Bitcoin is notably constructive. Glassnode explains:

There is a clear preference for call options, with concentration around strike prices of $70k to $100k. Furthermore, the dominant put option strike prices are at $25k and $30k, which are at higher price levels than the mid-year.

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.