Bitcoin Traders Secure Against Price Drops Amid ETF Deadline: Deribit

• Protection Against Potential Bitcoin Price Drop
• Market Indicators of Protection-seeking
• Negative Skew in BTC Call-Put
• Buy the Rumor, Sell the Fact
• Spot ETFs and Bitcoin
• Decrease in BTC DVOL

Protection Against Potential Bitcoin Price Drop

Recent market activity reveals that traders are pursuing strategies to shield themselves from a possible price decline in bitcoin (BTC). This insight comes from Luuk Strijers, Chief Commercial Officer at Deribit, a top crypto options exchange.

Market Indicators of Protection-seeking

Strijers points to overbought put options and sold call options as signs that the market is readying itself for potential price reductions. Put options offer a profitable route for buyers if the asset's price falls, acting as a hedge against this outcome. Call options, on the other hand, allow buyers to profit from a price increase. At Deribit, each options contract corresponds to one BTC.

Negative Skew in BTC Call-Put

Data tracked by Amberdata showed that the one-month BTC call-put skew turned negative within the last 24 hours, reaching a low of -2.69% for the first time since Oct. 13. The one-week, two-month, and three-month skews have also dipped into the negative, indicating a heightened desire to hedge against Bitcoin$42,260 -0.64%'s potential weakness. Skew measures the difference in demand for calls and puts.

Some traders may anticipate a Bitcoin price drop in a classic sell the fact move, following the much-anticipated SEC approval of spot bitcoin ETFs. There might also be concerns about possible delays in approvals.

Buy the Rumor, Sell the Fact

The cryptocurrency has seen a rally of over 60% since early October. This surge was largely driven by the expectation that the U.S. Securities and Exchange Commission (SEC) will approve one or more spot ETFs in 2024. The saying buy the rumor, sell the fact describes a common practice where traders buy an asset anticipating positive news and close their positions once the news is confirmed.

Spot ETFs and Bitcoin

Spot ETFs, which invest in Bitcoin rather than its futures, are widely expected to stimulate mass adoption, thereby enhancing the cryptocurrency's market valuation. Standard Chartered's note to clients on January 8 suggested that $50 billion-$100 billion of inflows into bitcoin ETFs in 2024 could potentially push BTC to reach the $200,000 mark by the end of 2025.

Decrease in BTC DVOL

Deribit's forward-looking bitcoin volatility index (BTC DVOL) calculates Bitcoin's annualized 30-day implied volatility based on options data. It signifies expectations for price turbulence over the next four weeks. Since Monday, the DVOL has dropped ten points, from 73% to 63%. Strijers pointed out that the selling of calls and call spreads in January expiry contracts has been a significant factor in this DVOL drop.

However, short-term implied volatility measures, like the seven-day gauge, remain high above 100 or 50 points more than the DVOL. This trend indicates expectations for market turmoil in the immediate wake of the SEC decision. The drop of ten points in DVOL since Monday is noteworthy.

Edited by Jonathan Stoker