Key Points
- Implied volatility of ether and bitcoin options is indicating a decrease in confidence for future price increases.
- Derivatives traders are reportedly abandoning hopes of further price increases for bitcoin.
The implied volatility (IV) of both ether and bitcoin at-the-money (ATM) options has seen a significant drop, suggesting a loss of confidence in the likelihood of future price increases.
Declining Confidence in Cryptocurrency Value
Ether ATM options have seen their IV decrease from over 88% to around 60% for one week, one month, and multi-month expires. Similarly, the IV for bitcoin ATM options has fallen from over 77% to below 51% for the same expiry ranges.
Gordon Grant, a cryptocurrency derivatives trader, has described this drop in implied volatility as “astonishing”. He noted that the multi-week IV drop is in line with a decrease in realized volatility.
Shift in Trader Expectations
Grant further explained that derivatives traders, who had been selling options contracts both before and after the recent halving event, have seemingly lost hope in the prospect of rising bitcoin prices.
He highlighted a shift in market sentiment, with traders now placing more importance on options with a lower strike price. This could be because they believe bitcoin is more likely to reach $75,000 rather than $100,000 by year end.
According to Grant, investors held onto their bitcoin for too long when the market prices were high before the halving event, and subsequently missed the opportunity to profit when the market prices fell.
He also observed a rush of traders attempting to sell options contracts before they expired, as the prices for these contracts were significantly higher before the halving, particularly for contracts betting on bitcoin reaching $100,000 by December 2024.
Grant concluded by noting that holders of bitcoin were late to cash in on cyclically high vols pre-halving and the rush for the exits out of fat premiums.
