Bitcoin Option Markets Signal Upside Price Risk Despite Warnings of Possible Fed-fuelled Sell-off
Bitcoin options markets continue to signal near-term upside risks to the BTC price, despite warnings from strategists that Wednesday’s Fed meeting could trigger a “bloodbath” in cryptocurrency markets.
According to a chart on The Block, the widely followed 25% delta skew of Bitcoin options expiring in seven days remained at 4.44 on the 30th of January, not too far below recent multi-year highs hit earlier this month in the 9.0 area. The 25% delta skew of Bitcoin options expiring in 30, 60, 90 and 180 days were all between 0.5 and 2.0, indicating more of a neutral market bias, though all also remain close to multi-month highs.
The 25% delta options skew is a popularly monitored proxy for the degree to which trading desks are over or undercharging for upside or downside protection via the put and call options they are selling to investors. Put options give an investor the right but not the obligation to sell an asset at a predetermined price, while a call option gives an investor the right but not the obligation to buy an asset at a predetermined price.
A 25% delta options skew above 0 suggests that desks are charging more for equivalent call options versus puts. This 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.
Elsewhere, the Bitcoin Open Interest Put/Call Ratio on dominant crypto derivatives exchange Deribit on the 29th of January slumped to a new record low at 0.38. That means that investors favour owning call options (bets on the price rising) over put options (bets on the price dropping) by a record margin.
The Fed is widely expected to raise interest by a further 25 bps on Wednesday,
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