Bitcoin Options Data Shows Caution among Traders, What’s Next?

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As a seasoned analyst with over two decades of market experience under my belt, I have witnessed countless bull and bear runs, market crashes, and economic recoveries. The current Bitcoin rally is indeed impressive, breaking new records weekly, but it’s important to read between the lines of the options data.

The price of Bitcoin (BTC) has surged past another record high this week, currently standing at approximately $106,775. Despite this significant growth, recent options data suggests that traders are not aggressively pursuing fresh highs in the market’s leading cryptocurrency. Over the last 24 hours, Bitcoin has exhibited a modest volatility of 2.6%, and its market capitalization stands at a staggering $2.12 trillion. In the same period, the trading volume amounted to $108.58 billion.

The surge in Bitcoin’s value following Donald Trump’s election victory in early November 2024 is extraordinary, as investors are optimistic about the potential for the United States to establish a strategic Bitcoin reserve. Numerous market analysts have made daring forecasts, suggesting that BTC could rise anywhere from $150,000 to $200,000 by the end of 2025.

Instead, the Bitcoin options data reveals a less enthusiastic approach by traders towards hitting fresh highs with BTC. In contrast, the derivatives data from the Deribit exchange indicates a conservative perspective on Bitcoin’s short-term future.

As of now, the risk-reversal for options expiring this coming Friday is negative, indicating a greater interest in put options which provide protection against potential losses. These puts, with their expiration on December 27th, are slightly more expensive than calls. Contrastingly, the risk reversals for options expiring at the end of March show a slight preference for call options, with a difference of less than three volatility points favoring them.

In simple terms, the behavior of Bitcoin traders has significantly changed in the past few weeks. Instead of aiming for new highs like they typically do, they’ve been leaning towards buying calls (options that give the right to buy at a future date). This shift is quite substantial, pushing short-term and long-term call biases beyond four or five points of volatility. Moreover, the short-term risk reversals show a stronger preference for buying calls compared to their longer-term counterparts.

It appears that the most significant trades on Deribit today indicate a bearish trend. The biggest trade was a short position on a call option with a strike price of $108,000, set to expire on December 27. Subsequent trades involved long positions on put options with strike prices of $100,000, due to expire on both December 27 and January 3.

How Will Bitcoin Price React after FOMC Meeting?

Traders are expressing a sense of caution due to worries about the Federal Reserve’s decision on Wednesday. This decision might involve a 0.25% reduction in interest rates. Furthermore, it could hint at fewer or slower rate decreases through 2025.

A possible outcome might lead bond interest rates to increase, fortify the US dollar, and diminish the allure of riskier investments. It seems that experienced Bitcoin traders are preparing for a potential stock market downturn.

Meanwhile, confidence in Bitcoin among retail sectors persists, fueled by large-scale institutional investments like those made by MicroStrategy. Additionally, the influx of funds into spot Bitcoin ETFs has remained robust, with BlackRock’s IBIT recording over $36 billion in total net inflows.

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2024-12-17 14:58