Options market pricing shows that investors’ Bitcoin price perspective has changed from negative to positive in days. As Bitcoin rises above $28,000 for the first time since early June, market attitude changes.
Bitcoin’s annual gains are now closer to 70% due to 1) increasing demand for safe haven assets due to global banking system issues and 2) increased wagers that the US Federal Reserve won’t tighten further. Indeed, investors are divided about whether the Fed would raise rates one last time by 25 bps at its policy meeting next week.
Last Monday, Bitcoin dropped below $20,000 for the first time in two months, sending the 25% delta skew of Bitcoin options expiring in 7, 30, 60, 90, and 180 days to their lowest values of the year, between -5 and -10.
However, the fast price rebound has seen the 25% delta skew of Bitcoin options expiring in 7, 30, 60, 90, and 180 days bounce rapidly into bullish territory, with all close to 5. That’s the largest 7-day 25% delta skew since mid-February. That’s the 30-60-90-day skews’ greatest level since mid-January. Finally, the 180-day skew is largest since November 2021.
The 25% delta options skew is a prominent proxy for how much trading desks overcharge or undercharge investors for put and call options. Call and put options provide investors the right but not the obligation to buy or sell an asset at a fixed price.
Desks charge more for call options than puts with a 25% delta options skew over 0. This suggests investors are more keen to safeguard against price increases by buying calls than puts, which is bullish.
So, bitcoin options markets indicate investor positioning for further rises. Recent moves explain that. Bitcoin may potentially attempt the psychologically crucial $30,000 level and then the early June 2022 highs in the $32,500 area after clearing resistance at the late May 2022 lows in the $28,000 area. Actually, such a rally faces little pushback.
Fundamentals suggest Bitcoin will rise. If the Fed is dovish this week, risk-on flows and easing banking conditions should boost Bitcoin. If the Fed isn’t as dovish as the market hopes, it might cause a short-term price wobble but also heighten US bank sector pressures, which could boost Bitcoin demand as a safe-haven.
On-chain developments remain positive. On-chain measures including non-zero balance wallets, daily transactions, daily active addresses, and new address generation are all rising. Glassnode’s “Recovering from a Bitcoin Bear” dashboard also shows positive indicators.