Bitcoin Options Market Turns Bearish as Prices Slump Towards $20K

• Bitcoin’s price has dropped below the $21,000 level as traders face headwinds like liquidity crisis amongst major crypto-friendly banks and US Federal Reserve signals.
• The 25% delta skew of Bitcoin options expiring in 7 days has fallen to its lowest since December 2022, suggesting investors are bearish on the near-term outlook for BTC prices.
• Despite this, implied volatility for ATM options expiring in longer timeframes and Deribit’s Bitcoin Volatility Index (DVOL) remain broadly unchanged over the past month.

Bitcoin Price Drops Below $21K

Bitcoin’s latest slide below the $21,000 level on Thursday has caused traders to mull headwinds including a growing liquidity crisis amongst major crypto-friendly banks and ongoing macro headwinds as the US Federal Reserve signals risks. BTC/USD was last trading in the $20,700s, lower by over 5.0% in the last 24 hours according to CoinMarketCap and now down roughly 18% from earlier yearly highs in the low-$25,000s.

Options Market Suggests Bearish Near-Term Outlook

The 25% delta skew of Bitcoin options expiring 7 days from now on Thursday fell to around -6, the lowest since late December 2022. This suggests that desks are charging more for equivalent call options versus puts which implies there is higher demand for calls versus puts which can be interpreted as a bullish sign as investors are more eager to secure protection against (or bet on) a rise in prices.

Longer-Term Price View Holding Firm

The 25% delta skew of options expiring in 30-days and 60-days also fell to their lowest levels of the year of around -3 and -2 respectively; however, the 25% delta skew of options expiring in 90 and 180-days have been holding up with both remaining close to zero. This indicates that investors believe current headwinds faced by the market are unlikely to send Bitcoin lower on a sustained basis from current levels.

Implied Volatiltiy Holding Steady

Options markets are also sending message that Bitcoin investors remain fairly sanguine on price volatility risks as implied volatilty according to At-The-Money (ATM) options expiring in 7, 30, 90 and 180 days are broadly unchanged over the course of last month. Meanwhile Deribit’s Bitcoin Volatility Index (DVOL) is also broadly unchanged versus recent weeks at 49%.

Conclusion: Investors Bearish on Short Term Outlook but Expect Stability Over Longer Timeframe

In conclusion it appears that although investors remain bearish on short term outlook for BTC prices due too current market headwinds they expect some stability over longer timeframe given that implied volatility is holding steady over past few weeks and longer term option skews still remain close to zero

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