Bitcoin and Ethereum Face ‘Increased Downside Risk’ from Crypto Derivatives: Analysis
Data from the cryptocurrency derivatives market indicates a rising bearish sentiment among traders, with options activity pointing towards expectations of further price drops for major digital assets such as Bitcoin (BTC) and Ethereum (ETH).
A recent report from crypto exchange Bybit, in collaboration with analytics platform Block Scholes, highlights a notable increase in implied volatility levels across different expiration dates for Bitcoin and Ethereum options. This surge is especially noticeable in short-term options, suggesting increased near-term uncertainty.
According to Bybit lead technical writer Nathan Thompson, the implied skew, which reflects the difference in implied volatility between out-of-the-money puts and calls, can provide insights into the current market sentiment for BTC and ETH options. Higher implied volatility for calls is considered bullish, while higher implied volatility for puts is seen as bearish.
The derivatives markets are displaying a clear bias towards out-of-the-money put options for both Bitcoin and Ethereum in the short term, indicating a strengthening short-term bearish outlook as spot prices struggle to recover from recent declines. Notably, there is a higher open interest in put options compared to calls for Bitcoin options, suggesting traders are preparing for potential downward movements.
The report also points out that Solana (SOL) has been experiencing consistently negative funding rates for perpetual swaps over the past week. Thompson suggests that these rates indicate a potential bottom forming for SOL, with any further downward movement likely to be limited from current levels. However, he advises against drawing broad conclusions about the entire Layer 1 and Layer 2 ecosystem based on SOL’s performance.
Following the August 30 options expiration date, open interest for call options has decreased more significantly than for puts. This, combined with recent price declines and the failure of spot prices to recover, has contributed to growing skepticism about a potential upswing.
Given the trends observed in derivatives data, Thompson recommends inexperienced traders to exercise caution and wait for clearer market direction. Bolder traders may consider setting calls expiring at the end of September to navigate the current uncertainty.
In conclusion, the derivatives data suggests a prevailing bearish sentiment in the cryptocurrency market, particularly for Bitcoin and Ethereum, with traders positioning themselves for potential downside movements in the near term.
