Bitcoin Volatility Shows Investors Scrabbling for Options Downside Protection

Bitcoin options traders are seeking market downside protection amid the asset’s price uncertainty, evident in the spike in implied volatility premium for puts. Uncertainties have engulfed Bitcoin and the broader crypto market as investors quiver at the asset’s unclear price action. The pioneering cryptocurrency surged past $87,000 on Thursday only to correct to $83,800 today. Meanwhile, this skeptical disposition also spilled over into the options market, reflected in the premium of different options contracts. Market resource Glassnode highlighted the growing demand for downside protection from Bitcoin options traders, which has impacted the implied volatility premium for puts. Traders Take Risk-Averse Measures In a tweet , Glassnode highlighted a substantial premium disparity between put and call options. For the uninitiated, the former is a bearish bet that allows traders to sell Bitcoin at a predetermined price, and the latter a bullish disposition, giving market users buying options at a strike price. The market analytical firm tracked this growing caution using the Volatility Smile, a metric that measures the correlation between an options contract's implied volatility and its strike price. The indicator identified the premium paid for different puts and calls at a strike price.

Interestingly, the metric shows that put contracts are more expensive than their call counterparts at the same order price. This results from a higher implied volatility premium for market users betting on lower prices as institutions and retail traders hedge against further Bitcoin price decline. Moreover, the Options Delta 25 Skew parameter further exposes this disparity. The indicator, which displays the difference in implied volatility for puts and calls bearing the same delta, highlights the deviation in skew for 1-week and 1-month put and call contracts.

The delta skew has been on a downtrend lately, suggesting that put premiums have increased extensively in comparison to equivalent calls. Market makers and investors have adopted this risk-averse behavior to cushion the escalating Bitcoin volatility. Long-Term Holders Unperturbed Despite Uncertainty Meanwhile, Bitcoin’s recent price action has raised fears among short-term holders, who have sold their stash considerably to lock in both profits and losses. The over 23% decline from its all-time high has slowed capital inflow and futures activities across exchanges. However, the spending rate among long-term holders remains interestingly low. These unique addresses, those who have held Bitcoin for at least 155 days, have remained relatively calm, resorting to keeping their stash rather than dumping them despite being at significant gains. This might reflect growing confidence in the asset's ability to rebound from recent lows or their patience in observing market trends before taking clear action. Notably, these wallets have a reputation for selling during the bull market and accumulating in the bear season. Bitcoin currently trades for $84,068, down 2% over the past 24 hours.